HOUSINGNEWS REPORT
REVERSE MORTGAGES: CAN FINANCING FOR SENIORS CHANGE WITH THE TIMES?
AVERAGE U.S. HOMEOWNERSHIP TENURE (YEARS)
9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00
Reverse Mortgage Mechanics An FHA-insured reverse mortgage is a negatively amortizing loan secured by real property. This brief and basic definition hides a world of complexity. With a forward mortgage, you might borrow $100,000 at 5 percent fixed and then make monthly payments of $536.82 for principal and interest over 30 years. The loan balance goes down each month as a result of amortization and at the end of the loan term all principal and interest have been paid. The situation is very different from a reverse mortgage. If you borrow $100,000 at 5 percent there are no required monthly payments for principal or interest. It might seem as though the reverse mortgage borrower is “saving” $536.82 in cash per month when compared to someone with a forward loan, but what’s really happening is that repayment is being deferred and the loan balance is growing. As the old saying goes, there’s no such thing as a free lunch.
retirement with bulging mortgage debts. Fannie Mae explains that “among Baby Boomer owner- occupants aged 65 to 69 in 2015, fewer than 50 percent were mortgage-free, down 10 percentage points compared with the pre-Boomer group of homeowners who were the same age in 2000, prior to the housing bubble.” “Forty-four percent of 60- to 70-year- old homeowners bring their mortgage into retirement,” according to a survey from American Financing, a Denver-based mortgage lender. “And, 32 percent predict it will take them more than eight years to pay off. An additional 17 percent say they may possibly never pay it off.” Aging In Place Given rising cash costs, declining income, and trillions in equity, doesn’t it make sense for seniors to access household wealth, to right-size their income and assets?
“Adults,” said AARP in a 2018 report, “want to stay in their communities and homes as they grow older especially when considering life after their working years. People spend years making connections and commitments to homes, friendships, community organizations, and local social ties within their community. Communities become a source of support and engagement for its residents, particularly older adults who have an even stronger desire to age in place.” The age-in-place preference is profoundly important to most seniors. AARP says that among those 65 and older, two-thirds (66 percent) want to stay in their current residence and never move. Zillow found that when given a choice between moving and fixing up, 87 percent of those aged 55 and above prefer to stay put. This is the marketplace bullseye for reverse mortgages. It potentially includes millions of seniors with real estate equity and a powerful desire to age in place.
The answer is complicated because more than dollars are involved.
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DEC 2018 | ATTOM DATA SOLUTIONS
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