A blog post from the Urban Institute published on Tuesday went in depth into the over $3 trillion in untapped home equity by seniors. Homeowner age 65 and older are unwilling to tap into the wealth of equity from their homes, due to various financial concerns. The data from Urban Institute is backed by Fannie Mae’s National Housing Survey, which found that 37 percent of senior homeowners feel concerned for their finances in retirement, and only 6 percent of seniors are interested into tapping into their home equity to address these concerns.
Equity may be accessed through downsizing, forward or reverse mortgage products, or even indirectly by underspending on maintenance, yet seniors are unlikely to use mortgage products as a method of equity access. Out of the four primary mortgage channels for equity extraction—home equity lines of credit (HELOC), closed-end seconds, cash-out refinance loans, or Home Equity Conversion Mortgages—no channel had an origination rate greater than 4 percent, and only one, HELOCS, had a rate exceeding 1 percent.
The low rate of equity access through mortgage products among seniors may be due to a desire to stay out of debt, or the increased number of seniors who stay in the workforce into old age. Additionally, poor financial literacy and complexity as well as the high costs of some mortgage products may steer seniors away from such products. These factors combined have led to a large, untapped amount of wealth.
Experts Karan Kaul, Research Associate at The Urban Institute, Laurie Goodman, Codirector of the Urban Institute, and Patrick Simmons, Director at Economic and Strategic Research, list a few ideas in the blog post to help open access to home equity for seniors: improve reverse mortgage financial literacy, reduce the cost of reverse mortgages, improve access to credit, and explore new products and alternative approaches for equity extraction.