The Low Adoption Rate of Reverse Mortgages Among SeniorsReverse mortgages are financial products that have been around for a while now, however, they still have a low adoption rate among seniors in the United States. According to estimates, less than 2 percent of those aged 62 or older have an adjustable-rate mortgage (ARM). This is surprising, given that many seniors could benefit significantly from these loans.
Reverse Mortgages: An Overlooked Financial Resource for Older AdultsA reverse mortgage, also known as a home equity conversion mortgage (HECM), is a loan program that allows older adults to tap into the equity of their homes. Unlike traditional mortgages where the borrower pays a lender, a reverse mortgage lender pays the borrower instead. This arrangement allows seniors to use the equity in their homes to meet financial needs, such as paying for medical expenses, renovating their home, paying off debt, or supplementing their retirement income. One of the major benefits of reverse mortgages is that the borrower does not have to pay the loan back as long as they live in their home. The loan along with accumulated interest is paid back when the borrower moves out or dies. This allows seniors to remain in their homes while still accessing their equity. Another benefit of reverse mortgages is that they are federally insured, meaning the borrower will never owe more than the value of their home at the time of repayment.
Why Are Only 2% of Seniors Utilizing Reverse Mortgages?One reason for the low adoption rate of reverse mortgages is that many seniors simply don’t know about them. Although television commercials and word-of-mouth promotions have increased awareness of this financial product, many older adults still have limited knowledge about its workings and benefits. Another reason is that seniors have been misled by myths about reverse mortgages. The reality is that users retain title and ownership of their homes and that they are not scams. High fees may be a drawback, but they do not necessarily make these types of loans too expensive for all seniors. Additionally, some seniors may be reluctant to part with their home equity, even if their current financial situation calls for it. This reluctance may stem from a desire to leave their home as an inheritance to their children or just the emotional attachment they have to their home. The next section will examine these misconceptions and how they could be addressed.
The Misconceptions and Realities of Reverse Mortgages Among Older AdultsSome of the most common misconceptions about reverse mortgages include:
- Reverse mortgages are a scam
- The lender takes ownership of the borrower’s home
- The loans are too expensive
- The borrower loses their home if they outlive the loan
- Reverse mortgages are federally insured
- The borrower keeps the title and ownership of their home
- The loan is not due until the borrower moves out or dies
- The lender cannot force the sale of the home if the borrower outlives the loan