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Key Findings Details

How Home Equity Extraction and Reverse Mortgages Affect the Credit Outcomes of Senior Households
Stephanie Moulton, Donald Haurin, Samuel Dodini and Maximilian D. Schmeiser
WP 2016-351

  • Senior homeowners can extract home equity through different borrowing channels, and the channel through which they borrow equity is associated with different credit trajectories both before and after extraction.
  • Senior homeowners extracting equity through a home equity line of credit (HELOC) tend to have the strongest credit profiles of all types of borrowers prior to extraction that remain strong post extraction (e.g., high credit scores, low rates of delinquency). By contrast, senior homeowners extracting equity through a reverse mortgage had lower credit scores at the time of origination and were more likely to have had a credit shock prior to getting their loan than other borrowers and non-borrowers. The credit shock is observed as a drop in credit score of 25 or more points and an increase in credit card balances within the two years prior to loan origination.
  • While there is some decline in non-housing debt across all borrowing channels in the three years after extracting from home equity, the decline is the greatest among seniors extracting home equity through a reverse mortgage, and particularly for credit card debt.