Tapping home equity in retirement has advantages and pitfalls: Harvard researcher

Older Americans are forced to navigate a series of serious financial challenges compounded by their needs for both housing and later life care. While home equity can certainly be a beneficial tool for some seniors to deploy, it will not always be a definitive answer for every senior’s needs.

This is according to Jennifer Molinsky, project director of the “Housing an Aging Society” program at Harvard University’s Joint Center for Housing Studies (JCHS) in an interview with NextAvenue.

Published on the heels of JCHS’ “Housing America’s Older Adults 2023” report from December, the growing number of mortgage products available to a wider swath of American seniors could make a difference for those aiming to age in place.

As noted in that report, however, older Americans are hesitant to tap their home’s equity for a variety of reasons, including leaving it in reserve to protect against an unforeseen economic shock or to leave to an heir.

“But what constitutes an emergency?” Molinsky told NextAvenue. “If you could use your home equity to make your life better — to buy hearing aids, for example — maybe that’s a good investment.”

But equity is not a resource that every older American has access to. Roughly two percent of older renters have the same level of wealth as older homeowners according to JCHS data, and there remains a pronounced gap between homeowners of color and their white counterparts, as noted by NextAvenue.

“Having less equity limits your options,” Molinsky told the outlet.

Additional funding for programs that can facilitate home modifications can also make a big difference for senior homeowners’ quality of life, Molinsky said.

Over the past couple of years, the U.S. Department of Housing and Urban Development (HUD) has shown that it’s paying attention to the emerging housing needs of an older population by creating programs that allow for age-minded home renovations.

HUD issued $15 million grants in mid-2022 and early 2023 designed to help with health and safety home repairs for low-income seniors.

“By 2040, it is estimated that 20 percent of the population will be over 65 years old,” said HUD Secretary Marcia Fudge in August 2022. “We must allow our nation’s seniors to age in place with dignity. This funding will give seniors the flexibility to make changes to their existing homes — changes that will keep them safe and allow them to gracefully adjust to their changing lifestyles.”

Other recent data suggests that home renovations may come with a burdensome economic cost for older Americans, amplifying the potential importance of assistance programs that can help seniors age in place.

Reverse mortgage companies have also invested in their own home modification programs. Before their merger, both Finance of America Reverse (FAR) and American Advisors Group (AAG) had explored different options in the modification arena, with FAR acquiring a home modification lending platform that continues today.