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August 22, 2016
You might not know it, but reverse mortgages are hugely popular throughout the United States…
A reverse mortgage allows homeowners age 62 and older to convert a portion of their home equity into tax-free loan proceeds, which they can use without restriction. To be eligible for a reverse mortgage, a borrower must be at least 62 years old, have sufficient home equity, own their home outright, or have a small enough mortgage balance that can be settled at loan closing.
Most retirees use reverse mortgages to increase their cash flow by eliminating mortgage payments, better manage their wealth and/or pay for retirement expenses — funding travel, living expenses or health expenditures like in-home care or home modifications.
For retirees wishing to relocate during their non-working years, whether to be closer to family and friends or to simply escape to warmer climates, a reverse mortgage can also be used to purchase a new residence altogether.
It is not surprising to learn that reverse mortgages are the most popular in the states with the biggest populations:
New York might not rank the highest on many “Best Of” retirement lists due to its perceived expense and higher state tax rates, but The Empire State is one of the most populous states for reverse mortgages.
Last year, 5.9% of all federally-insured reverse mortgages—known as Home Equity Conversion Mortgages (HECMs)—came from borrowers living in the State of New York, according to fiscal year 2015 data collected by the Department of Housing and Urban Development (HUD).
HUD insures HECMs through its sister agency, the Federal Housing Administration. This government backing protects borrowers by ensuring they will continue to receive payment, even if their lender experiences a hardship, like going out of business. It also protects lenders in the event that borrowers live for a long time and their reverse mortgage loan balance grows to exceed the value of their home.
Although many retirees envision spending their retirement years in a warm weather locale, New York can offer peace and quiet while still being close to all of the attractions and entertainment provided by big city living.
The state is also home to four cities that ranked among WalletHub’s Best Places to Retire 2016—Rochester, N.Y.; New York, N.Y.; Buffalo, N.Y.; and Yonkers, N.Y.
You know the saying, “Everything is bigger in Texas.” Well, it turns out the same is true for reverse mortgages as the Lone Star State is one of the largest states for these financial products.
Approximately 7.4% of all reverse mortgages originated last year came from Texas, according to HUD data. Reverse mortgage loan counts have increased steadily in the state from 2009-2011 and has been the second-highest state for such volume from 2011-2014. In 2015, there were 3,146 total reverse mortgages endorsed in Texas.
For retirees looking to relocate to Texas, a few cities worth considering include Abilene, San Marcos and Grand Prairie—all of which were included among Forbes’ top-25 Best Places to Retire in 2016.
Florida is the quintessential retirement destination for many retired Americans. After all, it is The Sunshine State. Perhaps then it is no surprise that Florida is also a popular state for reverse mortgages.
In 2015, 8.3% of all HECM reverse mortgages were from borrowers living in Florida, amounting to a total of 3,544 loans, according to HUD data.
Staying true to its perception, Florida plays home to at least four cities in the Forbes Best Places to Retire 2016 rankings released this year. Those cities include The Villages, Cape Coral, Clermont and Largo, Fla.
If those cities don’t appeal to you, consider Orlando, Tampa or Miami. These cities made other “Best Of” lists for retirement destinations for their abundance of recreational activities and, in some cases, their affordability.
Of all the reverse mortgages that were originated in 2015, the vast majority came from California. With 8,002 loans, California represented 18.8% of all reverse mortgages in the country, according to HUD’s 2015 data.
Like New York, California is often considered among the highest cost of living states. So what makes The Golden State attractive to retirees? Well, California ranked first overall for retiree quality of life and thirteenth for health care among all 50 states and the District of Columbia, according to WalletHub’s 2016 analysis for the Best and Worst States to Retire.
Although California—along with many other Western states—was among the hardest hit during the housing market crash, home values in the area have been steadily recovering from their lows and are forecasted for even further price appreciation in the future.
Through June 2016, the median home value in California was $466,300, according to Zillow’s Home Value Index, which indicated home values in the state have risen 6.6% over the past year. Looking ahead, Zillow predicts values will rise another 1.8% within the next year.
Rising home values bode well for homeowners considering tapping into their home equity with a reverse mortgage. The higher the appraised value of one’s home, the more home equity they may be eligible to access from a HECM.
Reverse mortgages are also popular in certain cities located outside of the top states listed above. At the local market level, western cities like Denver, Seattle and Portland, Ore. and cater to a large number of retirees who currently have reverse mortgages.
Denver: In Denver, there have already been 1,038 reverse mortgage originated in the area from January 1 through July 31, 2016, according to recent data from Reverse Market Insight (RMI), a company that tracks reverse mortgage statistics nationwide.
Compared to last year, reverse mortgage usage is on the rise in the Mile High City. In 2015, Denver reported 827 loans year-to-date through July, representing a year-over-year increase of 25.5% in 2016. The city also has 58 active reverse mortgage lenders operating in the local marketplace.
Seattle: Up in the northwest, Seattle is king for reverse mortgage usage. The city reports 708 total loans this year through July, representing an increase of 21% from its year-ago level in 2015, according to the RMI data. As of July 2016, there are 53 active reverse mortgage lenders operating in the city.
Portland, Ore: Portland, Ore. ranked second among cities in the northwest region in terms of reverse mortgage volume. With 517 loans through July, Portland’s reverse mortgage count is 26.6% higher this year than it was in 2015. The city also had more active lenders than Denver with 58 loan originators currently offering reverse mortgages.
As a retiree who is at least 62 years of age, it is possible to get a reverse mortgage anywhere in the U.S., including non-continental locations like Alaska and Hawaii. But just because a particular area has a higher volume than another, doesn’t mean that state or city is the right place for your retirement years.
If you would like to learn more about reverse mortgages and how they can fit into your retirement planning situation, contact us for more information.
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