Older adults’ housing assets are growing like never before.
In fact, homeowners 62 and older saw their housing wealth rise by 4.91% (or $520 billion) in the first quarter of 2022 to a record $11.12 trillion from Q4 2021, according to the latest quarterly release of the National Reverse Lenders Association/RiskSpan Reverse Mortgage Market Index.
At the same time, the vast majority of people over 50 say they want to keep living in their homes. Yet, a new poll on healthy aging from the University of Michigan shows many of them haven’t planned or prepared for “aging in place.” The survey found that 88% of people between the ages of 50 and 80 said it was very or somewhat important to them that they live in their homes as long as possible, but only 15% said they’ve given a lot of consideration to how their home may need to be modified as they age (and 47% have given it little or no thought).
As a result, now might be the best time for senior homeowners to use the equity in their homes to do some of those aging-in-place modifications that would enable them to live in their homes longer.
Of course, it might be hard to convince seniors to spend money for grab bars in the bathroom, for example, when they’re perfectly capable of stepping into the bathtub on their own without incident. That’s where caregivers can have a conversation about why making these changes now – before something bad happens – makes sense.
“Family members can help encourage older adults to find out what’s available, to invest in home improvements, and to aid them in installing safety devices and technologies that can help keep them aging in place,” said Preeti Malani, who directs the healthy aging poll at the University of Michigan and is a professor in the university’s medical school. “Think of it as a positive investment toward current safety and future independence—that can help older adults get past the temptation to put it off for another day.”
Think of it as a positive investment toward current safety and future independence—that can help older adults get past the temptation to put it off for another day.
Ideas for aging-in-place projects
What are some aging-in-place projects homeowners might consider? Experts recommend several options:
- Making modifications in the bathroom such as adding grab bars, installing no-step showers and raising toilet seats
- Changing inside and outside accessibility such as installing low-rise steps or adding ramps
- Enhancing interior and exterior lighting
- Installing lever-style doorknobs and faucet handles
- Placing light switches lower and electrical outlets higher
- Adding emergency response systems
- Choosing smart-home devices, such as a voice-activated home assistant or a doorbell camera
- Creating single-floor living that includes a kitchen, bathroom, bedroom and laundry on the same floor
Leveraging home equity for aging-in-place home modifications
What are seniors’ options for leveraging home equity to pay for some of these aging-in-place modifications?
The most common approaches are refinancing an existing mortgage, taking out a home-equity loan or getting a home equity line of credit (HELOC). Homeowners also sometimes opt for a reverse mortgage.
Refinancing a mortgage means securing a new loan to replace an existing one. By refinancing into a loan with a lower interest rate than the existing loan, homeowners save money on their monthly payment and interest they pay over the term of the loan. The lower the interest rate, the more money that can be saved over time. In some cases, even a reduction as small as 0.5 percentage points could be worthwhile. Homeowners may also be able to take advantage of a cash-out refinance, which allows individuals to tap into their home equity essentially as a lower-interest loan.
Home equity loans give homeowners a lump sum. These are best if homeowners want predictable monthly payments, and may be an especially good option right now because of the way interest rates are trending.
A HELOC offers a line of credit that individuals can borrow against when they need to and works well if they have ongoing home improvement or modification projects.
Reverse mortgages allow homeowners to borrow against the value of their house. They can receive cash as a lump sum, monthly payments or a line of credit. Unlike a traditional mortgage, they will not make monthly payments to the lender. Instead, when the homeowner dies, sells the home or leaves the house permanently, the entire debt becomes due for payment.
To select any of these options, homeowners need to already have significant equity in their home. To leverage that equity, keep in mind that a lender typically requires the homeowner to have at least 15% to 20% equity in their home.
There are benefits and drawbacks to each of these options, said Chris Theis, vice president and private banking team lead for Fargo, N.D.-based Bell Bank. He emphasized that, “especially seniors” need to be cautious.
“We see current customers come into our bank who have questions about these products,” he said. “They’ll bring in flyers they’ve gotten in the mail from places that are charging a lot of fees if you read the fine print. There’s a lot of confusing stuff out there, and you can end up paying a lot more for a loan than you would just by visiting your local community bank.”
There’s a lot of confusing stuff out there, and you can end up paying a lot more for a loan than you would just by visiting your local community bank.
Ultimately, Theis advised, make sure to explore all borrowing alternatives because for most people, he said, equity from homeownership is a key way to build personal wealth over time. In other words, homeowners shouldn’t put their valuable equity – their wealth – at risk without careful planning.