For the past decade, a growing number of seniors have been getting reverse mortgages, meaning a lender essentially buys the house from the owner. More people have been getting reverse mortgages, including younger homeowners.
Attractive option for end-of-life income
More people have been obtaining reverse mortgages, primarily retirees and senior citizens. A lender mortgages a property from the owner and pays them with either a lump sum or in monthly installments for a defined period of time. The owner can decide to repay the amount or let the lender take possession of the house after they die.
Reverse mortgages have historically not been taken out by many people. In 1995, according to CNBC, only 25,000 people finalized terms of a reverse mortgage and started receiving payment. Between 1990 and 2010, according to Daily Finance, only about 660,000 reverse mortgages were granted.
There has been an uptick in the past few years, and an increasing number of reverse mortgages are being taken out — and by younger people.
Boomers stocking up for retirement
A recently-released report on reverse mortgages by the MetLife Mature Market Institute found the average age of reverse mortgage borrowers plummeted in recent years, according to the New York Times. The average age of Home Equity Conversion Mortgage borrowers, a reverse mortgage offered through the Department of Housing and Urban Development, dropped from 77 years of age in 1990 to 73 in 2009.
MetLife also found, according to Time magazine, the most common age of borrowers of reverse mortgages fell from 74 in 2003 to 63 in 2009. The report noted a growing interest among Baby Boomers nearing retirement. Boomers 62 to 64 currently make up 21 percent of people likely to get a reverse mortgage, or people who go through the mandatory counseling before they can receive one. Only 6 percent of people in that age group did so in 1999.
The average age of people who went through such counseling, according to the New York Times, is 71.5 years of age, meaning more people are looking into a reverse mortgage at a younger age. Of those considering one, 46 percent are younger than 70.
Not for fun money
A reverse mortgages cashes in on the equity a person owns in their home. It seems a great way to partially fund retirement, but that isn’t why people consider one.
The MetLife study found that 67 percent of people who went through reverse mortgage counseling were considering one to reduce debt, compared to 27 percent who considered a reverse mortgage to enhance the quality of their lives. Furthermore, most of the people who were looking at a reverse mortgage to reduce their debt still hadn’t paid off the mortgage they bought the home with in the first place.
Daily Finance: http://www.dailyfinance.com/2011/08/31/reverse-mortgages-benefits-risks-money-and-happiness/