Over the same period, the number of older adults with mortgages has risen as the US population has aged. In 1998, about 728,000 homeowners ages 65 and older had a mortgage; by 2022, nearly 2 million did.
Moreover, the median amount of mortgage debt has also increased significantly. For homeowners ages 75 and older, median mortgage debt rose sharply to $106,800 in 2022, up from $66,369 in 1998—a 61 percent increase, after adjusting for inflation. This increase is substantive in dollar terms because mortgage debt is the largest type of debt homeowners carry, making up 99.4 percent of all debt for homeowners ages 75 and older. All age groups have experienced rising mortgage debt as home price increases have outpaced inflation, but homeowners ages 65 and older have been particularly affected.
The low interest rates during the COVID-19 pandemic gave borrowers the opportunity to refinance and lower their mortgage payments. Even so, the share of cost-burdened homeowners with a mortgage is up slightly from 2019. According to the 2022 American Community Survey, 40 percent of homeowners ages 62 and older with a mortgage were cost burdened, compared with 24 percent of homeowners younger than 62 with a mortgage.
Access to home equity is critical to the financial stability of older homeowners, especially homeowners of color
As cost burdens rise, it becomes increasingly crucial for older homeowners to be able to access their home equity. Older homeowners accumulated substantial home equity in recent years as home prices rose rapidly during the pandemic. For cost-burdened homeowners ages 62 and older, median home equity (adjusted for inflation) increased from $173,000 in 2019 to $222,000 in 2022.
Having the ability to tap into home equity is particularly important for older homeowners of color, who are more likely to be cost burdened and less likely to have sufficient liquid assets to cover a financial shock. According to the 2022 SCF, the median liquid assets of Black and Latine homeowners ages 62 and older were $3,580 and $6,200, respectively, while white homeowners held $16,270. In addition, 46 percent of older Black homeowners and 47 percent of older Latine homeowners are cost burdened, compared with 38 percent of older white homeowners.
Expanding access to tools for extracting equity would also benefit older homeowners of color because they hold most of their wealth in their homes. Among homeowners ages 62 and older, home equity composed 81 percent of total net worth for Black homeowners and 89 percent for Latine homeowners, compared with 47 percent for white homeowners in 2022.
FAQs
Expanding HECMs could make it easier for older adults to tap home equity. Given the increasing share of older adults with mortgages and growing mortgage debt, improving access to home equity could help older adults maintain housing stability and financial security in retirement.
What are the benefits of building equity in a home? ›
Building equity increases the amount of money homeowners have in their homes that they may be able to use now or in the future. You can borrow from your equity as a loan, invest it, build long-term wealth or sell your home for more than you owe and keep the difference.
Why is equity important in real estate? ›
Understanding how equity works is an essential step in preparing to buy a new home or refinancing your current mortgage. By leveraging the equity you build in your home, you can consolidate debt, pay for renovations or make updates that increase your home's property value in the long run.
Can I be retired and get a home equity loan? ›
But if you do need the funds for whatever reason, you might be wondering if you can even qualify for a home equity loan based on your Social Security income. As we'll explore in this article, the short answer is yes, but there can be some nuances to consider.
Can you get a home equity loan if you are on social security? ›
You can also use income from Social Security, pensions, investments, and rental properties to help you qualify for a HELOC. Benefit award letters, 1099s, investment statements, and signed leases can all be proof of these alternative incomes.
Is equity build up one of the advantages of home ownership? ›
Build Equity
The possibility of accumulating equity is one of the most important financial benefits of home ownership. You are essentially investing in your property, your home, with each mortgage payment you make each month. This recurring payment reduces the principal balance you owe while also paying down interest.
What is the disadvantage of using home equity? ›
Home Equity Loan Disadvantages
Higher Interest Rate Than a HELOC: Home equity loans tend to have a higher interest rate than home equity lines of credit, so you may pay more interest over the life of the loan. Your Home Will Be Used As Collateral: Failure to make on-time monthly payments will hurt your credit score.
How to use home equity to build wealth? ›
You have numerous options for growing your wealth with a home equity loan, and some of the better ones include:
- Make home improvements. ...
- Use it for debt consolidation. ...
- Finance real estate investments. ...
- Put it toward education and skills development. ...
- Start or expand a business. ...
- Investment portfolio diversification.
Bottom line. Your home equity is one of the most valuable assets you have, and it can increase over time. Before you decide to tap into your equity, make sure it's a responsible step to take in your circ*mstances — you don't want to put your primary residence at risk if you misuse the funds.
Why is equity an important value? ›
Equity is important because it represents the value of an investor's stake in a company, represented by the proportion of its shares. Owning stock in a company gives shareholders the potential for capital gains and dividends.
And if you're looking to buy a house, you might wonder if you can still land a 30-year mortgage when your age is north of 60. The short answer: absolutely! Luckily, whether you're 25 or 70, lenders look only at certain numbers when reviewing a mortgage application.
When not to use a home equity loan? ›
Don't: Use it to Pay for Vacations, Basic Expenses, or Luxury Items. You have worked hard to create the equity you have in your home. Avoid using it on anything that doesn't help improve your financial position in the long run.
How can seniors access home equity? ›
Reverse mortgage
With these loans, seniors won't make monthly payments, but instead get paid — out of their home equity — by their lender. These payments can be made monthly or as one lump sum. You can also opt for a line of credit that can be used as needed.
Can a 70 year old get a 30 year mortgage? ›
Thanks to the Equal Credit Opportunity Act, a lender can't discriminate against an applicant due to age, says the Consumer Finance Protection Bureau (CFPB). You could be 99 years old and get a 30-year mortgage as long as you qualify.
What is the oldest age you can get a mortgage? ›
Typically, this is either:
- Your age when you take out a new mortgage, with the limit ranging from around 65 to 80.
- Your age when the mortgage term ends, with the limit ranging from about 70 to 85.
High Debt-to-Income Ratio
Your debt-to-income ratio is the percentage of your income that goes toward paying your debts each month. If your debt-to-income ratio is too high, lenders may be concerned about your ability to make your payments. Many lenders look for a debt-to-income ratio of 43 percent or lower.
Is home equity a good idea? ›
If you own a home and you need to borrow money, a home equity loan may be an option worth considering. A home equity loan can help you get cash for home improvements, debt consolidation or other major expenses using the value you've built up in your home as a financial resource.
How long should you build equity in your home? ›
Loans with shorter terms and larger down payments build equity significantly faster than loans with longer terms. Generally speaking, if you have a good credit score and make your monthly payments on time, you should be able to build sizable equity in your home over the course of five to 10 years.
