The High-Class Problem That Comes With Net Worth

A lot of money is tied up in people’s homes. Those who need to take advantage of it most, however, may have a harder time doing so.

Paying off a mortgage is a form of forced savings. If you want to stay at home, you have no choice but to make each payment. That money — plus home appreciation — now amounts to $31.8 billion for all households, according to the Federal Reserve, more than three times what it was in 2012.

Saving for retirement, on the other hand, is not mandatory. As a result, some homeowners end up with a lot of home equity but little savings for retirement.

Here’s the problem with this situation. A retirement account is relatively easy to access and you can do it quickly. Home value? Not a lot.

The most obvious way to obtain this equity is to sell your home. But for some older homeowners, this may be out of the question.

Your home might be the way you like it because you built it that way or spent decades fixing it up. If you’re tied to local doctors or a place of worship, it’s difficult to cut ties and move away. Clearing out years of belongings is a total pain. And an appropriate, accessible new location – no stairs, minimal maintenance – may simply not exist wherever you want to be.

And there’s the money. If you have a mortgage and need to borrow to buy your next home, current interest rates could be double what they are today. There may also be capital gains taxes on the sale.

Then there is the question of your heirs, if any. In a Fannie Mae survey last year of older Americans, 62 percent said their goal was to leave their home to someone else. If you are proud of the heritage you have built – especially if you come from a historically disadvantaged group – the house is a testament to perseverance and a legacy of sorts.

So, next! Want to refinance your mortgage and take out cash, or get a home equity loan or line of credit, and don’t mind the high interest rates? Good luck, because you’ll need a high enough income and credit score to qualify.

This brings us to reverse mortgages. With this product, eligible people aged 62 and over can extract capital in different ways, for example, through a lump sum. Interest accrues in the background and the reverse mortgage balance increases instead of decreasing as a regular mortgage would. Generally, you pay off the mortgage when the home is no longer your primary residence.

Most people reject reverse mortgages. Lenders have rarely underwritten more than 100,000 federal policyholders in any fiscal year, and have not done so since 2009.

Why is that? Many seniors remember scandals involving the products, when borrowers felt cheated and surviving spouses or heirs were unable to keep the homes. New federal protections helped clean things up.

Still, reverse mortgages or the like seem inevitable in a nation where individuals are entirely responsible for their own retirement savings. A good test of its usefulness is this: Does any financial advisor who is committed to acting only in the best interests of his clients help members of his own family borrow in this way?

Jeremy Eppley, a financial planner in Owings Mills, Maryland, does this. His aunt lives in a house that she owns. Inflation, however, has eroded your limited retirement income and a reverse mortgage allows you to live better now.

“I never heard of her going on vacation,” Eppley said. “She could live a little.”

Your aunt has no children, and potential heirs have no specific expectations about an inheritance. If necessary, Medicaid could pay for your long-term care. This is a crucial point, as many people do not take advantage of the value of their own home because they want to have a lot left over to pay for a caregiver or a nursing home themselves.

Clearly there is entrepreneurial ingenuity at work. Much of this is focused on getting people (of any age) to hand over some of the future gains in the value of their home to a start-up in exchange for money now.

Companies like HomePace, Hometap, Point, Unison and Unlock are already at it. Your calculators can leave you breathless when you see how big a cut they could make in a decade.

The increasing financialization of the pillars of our future – 401(k)s and the loans against them, the degrees that can get people ahead, and the $1.6 billion in student debt they require – is alarming. But workplace savings and the push for higher education reflect good instincts: save for later, better yourself.

With home values, we may have gone too far in viewing homes as totems of a well-lived, conservative financial life.

Houses are trophies, of course. But your equity is also a tool. In the absence of any radically improved government safety net, people without much savings will need more ways to extract them.