Why Don’t More Seniors Use Reverse Mortgages?
New study points to cognitive aging challenges as a possible roadblock.
Reverse mortgages allow senior homeowners over the age of 62 to access valuable equity in their homes with an extremely low risk of problems like foreclosure. Yet while the National Reverse Mortgage Lenders and RiskSpan released new data showing seniors have $5.83 trillion in equity that they could potentially access, this report from reverse Mortgage Daily indicates reverse mortgage utilization remains low.
How low? Well, studies estimate only 2 percent of eligible seniors are using reverse mortgages. The report suggests part of the reason for that low utilization comes from cognitive aging challenges.
“In particular, given the impact of aging on memory and other cognitive skills, there is a need to consider the implications for financial decisions made by older adults,” says Gary V. Englehardt of the Syracuse University Aging Studies Institute.
Essentially, part of the challenge simply may come in the fact that as we age, we lose the ability to process and understand new information as quickly as we did when we were young. This can hinder a senior’s ability to make key financial decisions that could benefit their financial lives, such as safely using a Home Equity Conversion Mortgage (HECM) – another name for a federally-insured reverse mortgage.
“Seniors are typically more cautious about making decisions, in general, but the effects of cognitive aging could mean eligible seniors are missing out taking financial beneficial actions simply because they don’t understand them,” says Maria Gaitan, Housing Director of Consolidated Credit. “Families should encourage aging parents to reach out for help to a HUD-certified housing counselor so they can gain a better understanding of such complex lending tools. That way, they can make informed decisions even in unfamiliar territory like home equity conversion.”
Why are reverse mortgages safer?
Unlike other forms of home equity credit, a reverse mortgage is typically a fairly safe form of borrowing, mostly due to the fact that the homeowner is not required to make payments to repay the amount borrowed.
Homeowners age 62 and over who live in a property as their primary residence can use a federally-insured home equity conversion mortgage to borrow against the equity built up in that property. Equity is the value of the home minus any remaining balance owed on the mortgage. Since seniors have often lived in their home for a longer span of time and they’ve paid off the bulk of the mortgage, the amount of equity they have to access can be significant.
And unlike other home equity loans, there is no monthly payment of any kind as long as the borrower lives in the home. If you continue to live in the property, maintain it and continue to pay taxes, you don’t have monthly payments for principal, interest or any combination of the two. The amount owed only comes due once the last living homeowner leaves the home so in most cases the reverse mortgage is taken care of during the estate sale.
If you’re a senior homeowner over age 62 or you have aging parents that you think may qualify, it’s worth it to reach out to a HUD-certified housing counselor to see if you qualify. You can talk to a counselor confidentially at no charge simply by calling 1-800-435-2261.