An annual survey recently released by Ameriprise Financial showed that 47% of senior citizens who are approaching retirement age say they are looking to tap into their home equity in order to fund their lifestyles once they stop working. That is up from 39% five years ago, before the recession took full effect.
According to Ameriprise, this shift in opinion on using home equity is based on a number of factors — among them, loss of value in their investment portfolios, a shrinking private pension, raising the minimum age requirements to collect Social Security and rising healthcare costs.
On a more positive note, the extension of loan limits above $600,000 and the introduction of the lower-cost Saver reverse mortgage have attracted more seniors to tap into their home equity. Even in areas when home values have declined precipitously, future retirees are still looking to home equity because it looks better than what is in their 401(k)s or their bank accounts.
Some seniors have been reluctant to take out a reverse mortgage because of what Dr. Tony Webb of the Center for Retirement Research at Boston College calls “psychological barriers” to borrowing against the mortgage. Dr. Webb explains that these seniors have spent their entire lives paying off the mortgage and so they believe it makes no sense for them to pull out that money.