The Senate Special Committee on Aging recently held a hearing titled “Bridging the Gap: How Prepared are Americans for Retirement?” where they heard from academics, researchers and credit union representatives as to their ideas on solving the current retirement crises. The committee received input on topics ranging from 401(k)s to reverse mortgages.
“Many households have a little-recognized asset that they could turn to for income in retirement – the equity in their home,” Alicia Munnell, a researcher at the Boston College Center for Retirement Research said. “Generally, retirees think of their home equity more as an emergency reserve rather than a potential source of retirement income. However, given the challenge of ensuring retirement security, this view may be a luxury that many can no longer afford,”
Munnell is also an investor in reverse mortgage lender Longbridge Financial.
Reverse mortgages are a special type of loan that allows homeowners who are 62 and older to borrow against the accrued equity in their homes. Although the committee did not attempt to expand the home equity retirement concept, Munnell noted in her testimony the impact that reverse mortgages can play as a retirement tool for those who do not have other retirement savings other than the equity in their home.
“If households do not have enough from Social Security and their 401(k) assets, they should consider tapping their home equity by either downsizing or taking a reverse mortgage,” Munnell wrote. “Downsizing provides extra funds that can be used to generate retirement income and also cuts expenses for utilities, maintenance, and property taxes. A reverse mortgage allows retirees to stay in their home while accessing their equity; and the loan does not have to be paid back until the homeowner moves, sells the house, or dies.”
Although they can be of financial help to homeowners when money is tight, they also can become a burden and potentially jeopardize retirement security if the borrower is not careful. The Consumer Financial Protection Bureau (CFPB) also has addressed reverse mortgages recently after releasing a report which highlighted consumer frustration surrounding reverse mortgages. In an attempt to assist consumers who already have a reverse mortgage, the CFPB issued an advisory with tips on how to plan ahead to protect their family from financial hardships brought on by reverse mortgages.
Cover Story: