NCPA - National Center for Policy Analysis


April 26, 2005

An increasing number of seniors across the country are taking out reverse mortgages that allow them to convert a portion of the equity in their homes into cash without selling their home. The mortgage is not due until they move or die, when proceeds from the sale of the property can be used to satisfy the loan.

  • The number of seniors nationwide who took reverse mortgages in 2004 doubled from the previous year to more than 40,000, according to the U.S. Department of Housing and Urban Development, which insures the loans.
  • California, with nearly a third of the mortgages, ranked first, followed by Florida, Texas, and New York; Massachusetts ranked 11th, with 922 loans last year, up from 612 in 2003.

Under the program, the amount owed can never exceed the value of the house, because only a portion of the equity can be tapped.

  • Housing and aging specialists say seniors who have watched their homes appreciate in value while their fixed incomes fail to keep pace with rising costs are using money from reverse mortgages to upgrade their lifestyles.
  • Beside paying off bills and taking care of necessary expenses such as prescription drugs, they are spending the money on trips and hobbies.
  • About 28 million homeowners who are 62 and older are eligible for the loans; the money can be taken as a lump sum, a line of credit, or monthly payments.

Many financial analysts caution that the loan program is not risk free and can be an expensive way to borrow money. The loans have high upfront costs, and interest rates can exceed those of conventional mortgages. In addition, the homeowner is still responsible for taxes and insurance on the home and can face foreclosure if those expenses are not met.

Source: Tatsha Robertson, "More retirees pay the bills with reverse mortgages," Boston Globe, April 25, 2005.

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