One More Reason For Reverse Mortgage Demand

7/26/2007

posted by N. Sioris

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As most people know, reverse mortgages have been surging in popularity over the last couple of years. As the baby boomers reach retirement age during the next couple of years, reverse mortgage demand is expected to explode.

One of the explanations for this phenomenon is the lack of defined benefit retirement plans or pensions. Consequently, home equity will have to play a much larger role in the next retirement generation's financial plan than it did for previous generations. Luckily for many, home appreciation has soared in recent years and will provide the ability to tap into home equity through the use of a reverse mortgage.

In 1975, fifty percent of employees had a defined-benefit pension plan and one out of six employees had a defined-contribution plan. Since that time the statistics have almost been completely reversed. By 2005 only one out of every six employees had a defined-benefit pension plan and fifty percent of employees had a defined-contribution plan. Corporate America has clearly placed the responsibility of retirement savings and planning squarely on the individual.

Currently only 22% of retirees have an income plan that provides a road map for how they will draw down their assets in order to live a comfortable life in retirement and not outlive their money.

It seems obvious that more and more people will be forced to tap into their home equity as a means to provide retirement income. One of the best ways to do that is by using a reverse mortgage, rather than selling the home or taking out an equity loan that has to be repaid on a monthly basis. Additionally, a traditional equity loan requires income qualifications, which most retirees will not be able to meet.