Research Analyses Low Usage of Home Equity Among Retirees

New research from the National Council on Aging and a new Issue in Brief published by the Center for Retirement Research at Boston College show that limited awareness and knowledge of home equity tools contribute to the low take-up of financial products, such as reverse mortgages.

Conducted over eight months, NCOA’s research – funded by a grant from Reverse Mortgage Funding LLC – gauged interest in, and understanding of, home equity products among older homeowners and financial advisors. It relied on feedback gathered through focus groups with 112 consumers aged 60 to 75 and two comprehensive surveys of 254 financial advisors and 1,002 older homeowners.

Consumers and financial advisors were presented with a Reverse Mortgage Line of Credit and a Home Equity Line of Credit and asked which best met their retirement needs.

When the product was described but not named, 58 percent of consumers and 43 percent of financial advisors preferred a Reverse Mortgage Line of Credit over a Home Equity Line of Credit. Conversely, when both products were named, 68 percent of consumers and 37 percent of financial advisors reversed course and preferred a Home Equity Line of Credit.

Once aware that the unnamed product they liked was a Reverse Mortgage Line of Credit, a majority of participants still preferred the product and acknowledged a lack of education and understanding about the option. To fill this information gap, participants said they were open to advice from a trusted source on using home equity to help fund retirement.

In its Issue in Brief, titled Is Home Equity An Underutilized Retirement Asset?, the Center for Retirement Research said only about two percent of eligible homeowners have taken out a reverse mortgage. The CRR referenced a 2007 AARP survey of households that considered a reverse mortgage, but decided not to proceed, in which cost was by far the most commonly cited impediment.

“A HECM line of credit can nevertheless be quite attractive, even to retirees who do not have an immediate need for the funds,” according to the study’s author, Steven Sass.

Sass concluded that “strong behavioral and informational barriers have impeded such uses of home equity that could improve retirees’ well-being. Whether future retirees will exercise these options remains to be seen. But the pressures to do so will be much greater than they have been in the past.”