For Seniors, Home Equity Is on the Rise

Are you a homeowner age 62 or older? If so, there’s some good financial news for you. According to the National Reverse Mortgage Lenders Association (NRMLA), homeowners in that age bracket saw their home equity increase by a combined 3.1 percent to $6.3 trillion in the first quarter of 2017 from $6.13 trillion in the last quarter of 2016.

According to the NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI), the growth in housing wealth for retirement-aged homeowners was driven by an estimated 2.6 percent ($199.3 billion) improvement in senior home values, and offset by a 0.6 percent increase of senior-held mortgage debt that equaled $9.2 billion. The RMMI, a quarterly measurement of home equity held by older homeowners, rose to 227.07 in Q1 2017, another all-time high since the index was first published in 2000.

This rise in home equity will help seniors who are choosing to age in place secure the funds to make the necessary modifications to their home, such as stairless entryways and wider bathroom doorframes.

One way seniors can tap into their increased equity is through a reverse mortgage, available to homeowners age 62 and older with significant home equity. According to the NRMLA, reverse mortgages are a versatile tool that enables seniors to borrow against the equity in their home without having to make monthly principal or interest payments as with a traditional mortgage or home equity loan. Under a reverse mortgage, funds are advanced to the borrower and interest accrues, but the outstanding balance is not due until the last borrower leaves the home, sells or passes away.

Here are some smart ways seniors can use their reverse mortgage loans:

Make home improvements that allow them to remain in the home. While you might not recoup your investment on a kitchen reno or new deck, it does make sense to make those improvements that make your home a safe living space for you, such as wider doors, ramps, railings and adding a first-floor master bedroom and bath.
Pay off high interest credit cards. You don’t want to be saddled with debt in your golden years, so use part of your funds to pay off high interest credit cards.
Gift part of the money to your children to help them pay off student loans or put a down payment on a house.
Lower income earned from other sources to avoid paying income tax on Social Security benefits
When using your reverse mortgage funds, the No. 1 thing you want to remember is to leave enough for yourself and living expenses. Consult your accountant or financial planner to come up with a smart and safe strategy.

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