As seniors enter retirement, many of them are bringing their mortgages right along with them — despite the fact that home equity is on the rise.

According to data from the National Reverse Mortgage Lenders Association, U.S. homeowners aged 62 and older are holding more than $6 trillion in equity, an increase of $164.9 billion in home equity from the last quarter of 2015.

But along with that increase in home equity comes a $4.9 billion increase in mortgage debt held by that age group.

The Federal Reserve says that 6 in 10 adults in their 60s and almost 4 in 10 of adults age 70 and older owe money on their mortgages, in its 2013 study "Insights into the Financial Experiences of Older Adults." However, this isn't always a sign of financial stress, it points out. Some retirees prefer to pay down a lower mortgage in monthly payments that better fit their budget rather than pay it off in a lump sum.

But adults 65 and over also owe more on their mortgage than that cohort did a decade before, says the Consumer Financial Protection Bureau. From 2001 to 2011, the median amount owed by older homeowners on mortgages increased from around $43,000 to almost $80,000 according to the CFPB's Office on Older Americans in its May 2014 paper "Snapshot of older consumers and mortgage debt."

The toll taken by the Great Recession on people’s finances — not to mention their psyches — has led to a quest, for many, for a source of lifetime income to see them through retirement. For some, that has meant seeking out a reverse mortgage — now gaining traction as a retirement income tool.

The U.S. government insures only one type of reverse mortgage, through Federal Housing Administration-approved lenders. It’s called a Home Equity Conversion Mortgage, or a reverse mortgage.

About half of those seeking a reverse mortgage use some of their loan proceeds to pay off an existing mortgage, according to research from Stephanie Moulton, a professor at the John Glenn School of Public Affairs at the Ohio State University.

Others use the money to supplement retirement income or to help them cope with an unexpected medical or other expense, or even just to help them remain in the house they’re comfortable in — and while reverse mortgages can prove useful for all these things, they’re not without caveats.

Not only do most seniors not understand them, but there are definite drawbacks that can affect seniors in ways they might not anticipate.

In a report on reverse mortgages, Rep. Mark Takano, D-California, warned of a number of those drawbacks, including high costs that can come along with the loan; the death of a spouse resulting in the surviving spouse losing the home; and the danger of the loan going into default — which can occur if the homeowner fails to keep up the property or pay homeowner’s insurance and property taxes.

Instant Insights /

Home equity, mortgage debt both on the rise as seniors enter retirement

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