The Average Age Of Reverse Mortgage Borrowers is Decreasing.

The average age of reverse mortgage borrowers is dropping, according to a recent report issued by MetLife. As many are aware, reverse mortgages come with risks, and likely more so for younger borrowers.

Reverse mortgages allow homeowners who are at least 62 years of age to obtain a line of credit linked to their primary residence. The homeowner receives the ability to draw on this line of credit for the balance of their ownership of the residence, based largely on the value of the house, age of the borrower, and current interest rates. The borrow does not have to take the total amount available all at once. The applicable interest rate will only apply to the balance due and owing at any given time. Typically, neither the mortgage balance nor the accrued interest need to be paid back until the last surviving homeowner dies, sells the house, or permanently moves out.

The MetLife study found that younger borrowers are taking out reverse mortgages. Here are some of the findings:
                *Today baby boomers aged 62 to 64 make up 21 percent of reverse mortgage applicants.
                *In 1999, only 6 percent of applicants were in this age bracket.
                *Of homeowners who are considering a reverse mortgage, 46 percent are under age 70.

The movement toward a younger average age of reverse mortgage borrower comes with concerns. While you can imagine situations when a reverse mortgage appears to be a beneficial options, there are major negatives. The closing costs for the loans are much higher than for conventional mortgages, and younger borrowers receive less money because their life expectancy is longer. The closing costs are usually wrapped into the loan and are reflected as an initial draw on the credit line. This serves to reduce the amount of money the borrower can actually receive and starts the interest accruing on that initial draw. In addition, the borrower is still responsible for property taxes, homeowner’s insurance, and maintenance. If the borrower runs out of money and can’t pay the property taxes or homeowner’s insurance, the loan will default, and the borrower could lose his or her house.

MetLife’s study also found that:
            *most reverse mortgage applicants (67 percent) wanted to use the reverse mortgage to lower             household debt;
            *some (27 percent) wanted to enhance their lifestyle; and
            *some (23 percent) wanted to plan for the future.

These reasons all are taking the place of using a reverse mortgage to pay for health care that would allow borrowers to remain in their homes during their final years. Borrowers seem to be using reverse mortgages to cover short-term financial shortfalls. The MetLife study finds that strong reverse mortgage counseling is needed, and it cautions that homeowners need to consider whether to use their home equity to shore up their retirement financing or preserve this asset for major unexpected expenses in the future, such as health-related expenses that inevitably increase as people age.

The MetLife report can be viewed by clicking here.