Boomers' $3 trillion nest egg

Americans aged 62 and older had accumulated $3.19 trillion in home equity by the end of the third quarter of 2011, according to data recently released by the National Reverse Mortgage Lenders Association (NRMLA). During the same quarter, home equity increased by $46 billion, reflecting stabilization and improvement in home prices. The $3.19 trillion is the net result of a $4.2 trillion increase in aggregate senior housing values and a mortgage debt of $1.02 trillion.

This is good news for us older folks, as home equity often represents seniors' largest financial asset, frequently surpassing the value of 401(k), IRA and retirement savings combined. As a result, one of the most important issues facing aging boomers will be if -- and how -- to use their home equity to help secure their retirement.

Reverse mortgages are one way to use your home equity in retirement. You can borrow against the equity in your home without having to make monthly payments as required when you have a traditional mortgage or home equity loan. Under a reverse mortgage, funds are advanced to you, and interest accrues on this balance. The outstanding balance isn't repaid until you leave the home, sell it or pass away. You can take loan proceeds as a lump sum at loan origination, establish a line of credit or request fixed monthly payments for as long as you continue to live in your home.

According to the NRMLA, 99 percent of the reverse mortgages offered in America are home equity conversion mortgages (HECM) that are insured by the U.S. Department of Housing and Urban Development (HUD). To date, more than 725,000 senior households have utilized an HECM. 

Possible uses of a reverse mortgage include:

-- To pay for high medical or long-term care bills
-- To pay for needed repairs on your home
-- To provide a monthly payment to supplement your retirement income
-- To buy a new home

As with conventional mortgages, you can get a reverse mortgage with a fixed or variable interest rate. Bear in mind: No matter what type of reverse mortgage you get, interest rates are generally higher than conventional mortgage rates. For example, one proprietary calculator shows a fixed reverse mortgage rate with an annual percentage rate (APR) of 5.95 percent, while conventional 30-year fixed mortgages are in the 4 percent territory right now.

Here's one example of how a reverse mortgage might work, according to an online calculator offered by the NRMLA. A 70-year-old couple with a paid-for home worth $300,000 could get a monthly payment of $986 for as long as they live in the home or a single sum payment of $172,564. The calculator shows a variable interest rate of 4.11 percent; at that rate, the outstanding loan balance would grow to $211,037 in five years and $258,086 in 10 years. These amounts would be repaid to the bank if the house were to be sold or the owners pass away.

The monthly income shown by this example would certainly help supplement Social Security and other retirement income, but most likely it won't compensate for not having any other retirement savings. I'd not count on using a reverse mortgage as an excuse not to save as much as possible for your retirement years.

Before you snap up a reverse mortgage to secure your retirement, learn all you can about its terms and conditions. HUD, the NRMLA and the Federal Trade Commission (FTC) all offer excellent educational websites on the topic. In particular, make sure you understand the important conditions, such as upfront fees and insurance premiums, which can range from two to five percent or more of your loan amount.

You should also consider other ways to use your home equity to secure your retirement, including:

-- Renting your house and using the monthly income to cover rent on a smaller, cheaper place,

--  Selling your house and investing the proceeds, or

-- Taking on a roommate by renting a room or two to realize some income.

If you aren't purchasing long-term care insurance, then I'd seriously consider holding your home equity in reserve for the day when you might incur high bills for long-term care. At that time, you can take out a reverse mortgage or home equity loan. If you don't ever need long-term care, then the home equity will provide a legacy to your children. 

Your home equity: How to use it for retirement security
Planning your retirement: 9 ways to reduce your housing costs

As always, take the time to investigate all of your options. You'll sleep better at night, knowing that you're making informed decisions.

[venusvegasvada]

Classic! So the HMO's and their CEO's and Shareholders are ecstatic because they have found another huge pile of equity they can throw people under the bus for in order to pay for our abomination of a health care system.

A nest egg that was accumulated by a middle class that earned a decent wage from the 60's through till the 90's/00's. A middle class that hardly even exists anymore?

Call them the last generation (the last generation to have a shot at the American dream without being a criminal or a victim).

What about the generations behind them? The ones that are being thrown under the bus by the 1%? What kind of a future do they have to look forward too?

What kind of life do they have to look forward to in 20 to 30 years? Indentured servitude paying off a national debt they had nothing to do with?

This is sad people. Since when did the American dream consist of busting your @ss your whole life to get a decent home to spend your retirement years in just to have to liquidate all your assets in a downward spiral till death in order to pay the salary for the worlds highest paid CEO's? Is that the American dream now? Trying to time a persons exit from life to the point when the system relieves them off all their worth?

Screw this.

[DidHeSayThat]

-- To pay for needed repairs on your home.

Yeah, sure, after I sell you my home back, I'm going to repair it.

NOT.

[jeannettelj]

Well, isn't this a great story!! I see nothing about those of us 65 and older who are so under water on our homes that we will never have any equity. And the happy couple that you show? Try a picture of some real folks who are scared and worried about what the future holds for them.

[1notrub11]

Out of curiosity, how did you become "underwater" on your home at age 65+? Even if you owned multiple homes in your lifetime, you had to be buying "up" by a considerable margin each time to be significantly impacted by the housing market of recent days.
As a control, we have owned only one home (for 20 years) during my lifetime, purchased in the 400K range and owing 10% remaining at the moment. It's not luck - it's just not getting in over my head. BTW, it is certainly worth more than 400K in today's market.

[FerdFerkle]

"The outstanding balance isn't repaid until you leave the home, sell it or pass away." then you have nothing if you go into assisted living or a nursing home. Reverse mortgage is only a scam to benefit the company that deceives you into this scam. DO NOT DO IT!