Home Equity: An ‘Obvious Solution’ to Financial Anxiety?

Home equity loans may prove to be one way for Americans to meet their financial needs in a time of persistent, heightened economic anxiety among U.S. homeowners. But before that can happen on a large scale, some “education gaps” about home equity will need to be addressed, new research shows.

The aim of the research team at reverse-mortgage provider Finance of America Reverse (FAR), in its 2023 Home Equity Punch List, is to identify opportunities for improved understanding and highlight home equity as a way for homeowners to meet financial needs, they report.

FAR’s survey charted American homeowners’ sentiments about finances and financial planning for retirement as well as perceptions and understanding about home equity.

Researchers found that a majority of homeowners do not plan to utilize home equity nor do they particularly understand it. “Knowledge gaps about accessing home equity remain a major challenge,” reads the report’s executive summary.

The report revealed that almost 80% of homeowners feel anxious about the state of the American economy. That is the same percentage recorded in 2022, the first year of the survey. But concern about personal financial expenses grew since last year, with some 61% worried about unexpected healthcare costs in retirement, compared to 48% in 2022.

Forty percent of U.S. homeowners this time around said they feel anxious about their ability to pay off debt, which is up from 36% in 2022. And when it comes to discretionary spending, 41% of respondents said they were anxious about purchasing a car, a trip, or other large-ticket items, and that has increased from 32% in 2022.

Older Americans, of the Boomers (57-75) and Silent Generation (age 77-95), report significantly lower anxiety levels than Gen X, Millennials and Gen Zs. And women report greater concern than men about financial matters (82%: 75%).

More than half of women are anxious about their ability to retire on their terms—most respondents are interested in retiring in place—compared to 46% of men.

According to the analysts, older generations stand to benefit most from home equity loans, however younger homeowners have shown more interest. Just 32% expressed interest in a home equity loan despite financial anxieties, which is up just slightly from last year’s 28%.

For those respondents with financial advisors, Gen Z, Millennials, and Gen Xers said they were more likely to discuss with them topics such as home equity, retiring in the home, and long-term care than were older generations.

Reluctancy to discuss or utilize home equity could come from misunderstanding, the survey results indicated.

Only half (53%) of homeowners know that home equity could supplement income in retirement, the survey showed, and that falls to four in 10 among women.

Just three in 10 women were familiar with a reverse mortgage or cash-out refinance, and there is so much confusion about reverse mortgages that 61% of responding Gen Z and Millennial homeowners indicated that they had taken out a reverse mortgage though the minimum age to qualify for a reverse mortgage is 55.

“The product identity is not well established,” authors note in their executive summary.

The report continues: “Although the perhaps most distinctive feature of a reverse mortgage is eliminating a monthly mortgage payment, only 49% correctly indicated that a reverse mortgage can be used for that purpose.”

Meanwhile, 32% erroneously believed that a traditional home equity loan can be used for that purpose, the study revealed. The researchers concluded that “the benefits and unique use cases of various types of home equity products are not well known.” Even those with financial advisors do not seem to be considering home equity as a part of a holistic retirement plan, they said.

Discussing the findings with Business Wire, FOA Chief Marketing Officer, Chris Moschner said, “Homeowners’ concerns about the economy remain high and they are more apprehensive about their ability to meet their future financial goals compared to last year. This coincides with the fact that more than three in four seniors can’t meet their financial obligations in retirement and America’s retirement savings gap is nearing $4 trillion.”

He said that there is a “persistent lack of education and limited understanding of the benefits of home equity-based solutions and reverse mortgages–such as supplementing retirement accounts, helping older homeowners age in place, and paying for long-term care needs–exacerbating the problem further.”

He called home equity “an obvious solution hiding in plain sight, that can help allay concerns about financial longevity.”

“Now is the time to tackle this challenge head on,” Moschner said. “There’s a massive opportunity to use the home as both a shelter and a springboard for today’s modern retirees.”

Detailed findings and methodology are available at explorehomeequity.far.com.