Older homeowners are sitting on historic record levels of home equity — some $10.6 trillion in untapped housing wealth, according to recent figures from National Reverse Mortgage Lenders Association. People ages 62 and older saw their equity grow drastically during the past two years of unprecedented home-price appreciation.
Yet few are even considering tapping into it for their retirement, according to a new survey conducted by The Harris Poll. More than 2,000 homeowners offered feedback in the survey that sought to gain insight into the ways different generations view the use of home equity. The survey revealed that while uniquely poised to benefit from home equity, older homeowners lack both education and willingness that would allow them to do so.
These findings come when borrowers of all ages face market volatility, inflationary pressures and a looming recession. Considering that home values are expected to remain historically high, equity can offer senior homeowners an opportunity for financial stability that is scarce elsewhere in the current economic landscape. That is, if they understand what’s available and how it can benefit them.
In this climate, more than ever, awareness and education from trusted sources are key to connecting potential borrowers with available solutions. But the Harris survey revealed that the people most likely to benefit from home equity also are the least likely to consider using it.
In the survey, 94% of silent generation respondents and 89% of baby boomers said they were unlikely to use a home equity product. These older generations are two-thirds less likely to use home equity than surveyed members of younger generations. Further underscoring the gap, the survey revealed that an overwhelming majority (82%) of 55-and-older homeowners who are anxious about their ability to live comfortably in retirement say they are unlikely to take out a home equity loan.
Their wariness can be attributed to multiple factors also uncovered in the study. Among borrowers who expressed that they were unlikely to take out a home equity loan, 31% said they lacked interest or need while 14% said they were unwilling to take on more debt.
Familiarity with available home equity products, especially for older generations, is low. Fewer than 40% of older respondents expressed familiarity with home equity conversion mortgages (HECMs) while less than 60% had familiarity with a home equity line of credit (HELOC). A HECM is a reverse mortgage that needs to be repaid only when the borrower dies or leaves the home. A HELOC is a standing line of credit that requires monthly repayment.
Persistent attitudes about all debt being bad debt are common in older demographics. The overwhelming lack of perceived need might be explained by another finding the survey brought to light. Respondents among older generations report looking solely to their financial advisers to learn about potential vehicles for their finances. Yet financial advisers aren’t offering information about the use of home equity.
While 90% of Harris survey respondents said they expected their financial adviser to recommend a home equity loan if it was in their best interest, only 29% have discussed home equity loans with their financial adviser. These findings jell with another recent survey by the Academy of Home Equity in Financial Planning, which found that two-thirds of financial advisers surveyed were restricted by their broker-dealer from speaking with clients about home equity products they weren’t licensed to sell. Others felt they didn’t have adequate knowledge to recommend home equity products.
In other words, many people who might benefit from tapping into home equity aren’t receiving the message from the sources they expect to deliver it. Therefore, they aren’t receiving it at all. This discrepancy is worth noting by other financial professionals who may be able to offer useful information but don’t realize where the gaps in education exist. Understanding that many potential clients are not well educated on the possibilities for home equity can inform where and how to begin outreach efforts to communicate its benefits.
The survey also offered insights into how older generations would likely use their equity if a trusted source provided information about the benefits and safeguards of doing so. Although many of the findings spanned generations, the high percentages of respondents who shared the same opinions offer insights into where to focus communications to be effective.
For instance, 84% of all survey respondents desired to live in their homes for as long as possible. Offering that possibility to older generations who report less openness to using home equity might provide a gateway for piquing interest.
Looking closely at the responses in other areas of the study adds to the compelling case for outreach efforts from trusted sources beyond financial advisers. Although the study paints a picture of an older generation either unaware of or unwilling to pursue home equity options, it also shows that of all respondents, 43% would be interested in a home equity loan if they knew more about it.
Mortgage originators in particular stand to gain from the enormous opportunity that home equity presents. This is especially true if they recognize where their audience is lacking in knowledge, then fill that gap with outreach and education of their own. ●
Steve Resch is vice president of retirement strategies at reverse mortgage lender Finance of America Reverse LLC. He leads the education and training programs for financial professionals about the strategic use of home equity within a comprehensive financial plan. The views expressed in this article are those of the author alone and do not necessarily reflect the views and opinions of his employer. This article is not intended to provide financial planning, wealth management or tax advice. For tax advice, please consult a tax professional.
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