New Fidelity Report Highlights Reverse Mortgages
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In a new report that should be required reading for anyone considering a reversemortgage, The Fidelity Research Institute (an arm of Fidelity Investments) compares reverse mortgages with several of the other home equity options that are available to retirees.
The report (The Equity You Live In: The Home as a Retirement Savings and Income Option) takes issue with the increasingly popular notion that home equity is an ideal way to fund retirement. Although the run-up in housing prices over much of the last ten years has benefitted many, the report notes that the average annual home appreciation since 1963 is only 5.9% - slightly better than the return on ultra-safe Treasury Bills but far behind returns on stocks and bond investments.
In addition to modest long-term returns, regional differences in housing appreciation, volatility and the dangers of “over-investing” in a home in the hopes that it will be a retirement nest egg lead the study’s authors to conclude that Americans shouldn’t count on home equity as a significant retirement funding source.
But while the study notes the dangers of overreliance on home equity, it recognizes that tapping equity is a fact of life and a sensible retirement move in many situations. The report neatly compares and contrasts five specific tactics for utilizing home equity in retirement:
- Sell Home and Buy Less Expensive Home
- Sell Home and Rent Less Expensive Residence
- Rent Out Home and Rent Less Expensive Home
- Use a HELOC - Home Equity Line of Credit
- Take Out a Reverse Mortgage
As for reverse mortages, the report notes that while they can offer retirees many advantages, most people simply are not familiar or comfortable with the products at this time:
Despite its potentially promising future, the reverse mortgage is not a popular strategy among preretirees and retirees today and suffers to a degree from a lack of credibility. Very few have taken advantage of the reverse mortgage (only 8% of retirees who have leveraged home equity), despite most being at least somewhat familiar with this option. More than one in five pre-retirees who plan to leverage their home equity via some method do not “trust” reverse mortgages.
The full report can be downloaded using the linked thumbnail image shown above. With the acknowledgement that Fidelity is obviously in the business of selling stock and bond investment (not reverse mortgages), the report nonetheless is a thorough and well thought out analysis of using home equity for retirement income. It is highly recommended reading for anyone contemplating a reverse mortgage.
Article Series - fidelity
- Fidelity Surveys Attitudes on Reverse Mortgages
- New Fidelity Report Highlights Reverse Mortgages
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