HappySeniorHomeOwners Blog

Home Equity: A Bird in the Hand is Better than…

A New Conversation About Home Equity

 Since the onset of the COVID-19 pandemic, home values in the U.S. have surged. From 2020 to 2024, rural home prices rose by 23%, outpacing the 18% rise seen in urban areas. This shift was fueled by a “race for space” as families sought out larger homes and greener surroundings. According to the Case-Shiller National Home Price Index, overall U.S. home prices have jumped approximately 47.1% since early 2020—eclipsing even the housing booms of the 1990s and the early 2000s before the Great Recession.

As a result, most homeowners have accumulated significant equity. In fact, as of Q4 2024, Americans aged 62 and older collectively held nearly $13.95 trillion in home equity. Yet, for many older adults, this has led to an uncomfortable financial position: being house-rich, but cash-poor. Others may find themselves blindsided by a financial crisis in the coming years and have little recourse without tapping into their retirement portfolio, which could reduce their monthly income.

In this column, we’ll explore the upside and the often-overlooked drawbacks of rapidly appreciating home values—and how these factors are shaping financial conversations with older homeowners. 

The Hidden Costs of Appreciation

 Rising home equity may seem like a blessing, but it often comes with hidden burdens. Chief among them are increased property taxes and soaring homeowners’ insurance premiums.

Take California, for example. State Farm recently imposed a 17% rate hike on homeowners’ insurance, with an additional 11% increase pending. If approved, this would result in a staggering 28% increase. For seniors on a fixed income, these mounting expenses can put pressure on budgets and force difficult decisions. Some older homeowners who own their home outright now have property tax bills that exceed their previous mortgage payments.

Home Equity is Just a Number until…

 Home equity is not a liquid asset—it’s just a number on paper unless accessed through a refinance, home sale, or reverse mortgage. Worse yet, it can shrink overnight.

In March 2025, home prices across the 20 largest U.S. metro areas dipped by 0.12%, marking the first monthly decline in over two years. While minor, this drop highlights the reality that real estate markets are cyclical. Seniors counting on their equity as a safety net may find themselves in trouble if home values decline or if they can’t qualify for a loan when they finally need access to that wealth.

 Tapping Equity Without the Burden

One potential solution for older homeowners is a Home Equity Conversion Mortgage (HECM). As reverse mortgage professionals know, a HECM-Reverse Mortgage converts a portion of a borrower’s home value into cash or a growing line of credit, without required monthly mortgage payments.

Of course, HECMs do have significant upfront costs, including a 2% initial mortgage insurance premium (MIP) based on the home’s appraised value, capped by the FHA’s lending limit. For a home valued at $1,149,825 or more, that cost alone can exceed $24,000. Even so, a HECM can offer significant long-term value, especially through its line of credit feature, which grows each month the funds remain unused, at a rate tied to the current note rate plus 0.5% annual MIP.

The Cost of Waiting: One Example

 Consider this scenario: a 72-year-old homeowner with a fully paid-off home that’s worth $600,000 today. If their home value dropped by 25% in five years, that home would be worth $450,000: that’s a $150,000 ‘loss’ in equity that may never be recovered in that homeowner’s lifetime.

But if that same homeowner had secured a HECM-Reverse Mortgage when the home was worth $600,000, they might have locked in access to a $200,000 line of credit. Over time, that unused credit line would continue to grow, regardless of future home price drops.

Yes, there are costs. Let’s assume the initial loan balance (UPB) was $16,500. At an average 5% interest rate, plus the 0.5% annual MIP, in five years the loan balance would grow to about $22,000 a total increase of just over $5,200. They in essence preserved access to $150,000 in equity that they otherwise may have lost while securing a line of credit that has grown to over $250,000 over five years. 

The HECM-Reverse Mortgage: Flexibility Over Fragility

Being house-rich doesn’t always make one financially secure, especially for older adults facing rising costs, uncertain markets, and limited income. While reverse mortgages aren’t for everyone, tools like the HECM can offer a powerful way to preserve access to home equity without sacrificing ownership or taking on new monthly mortgage payments.

In the end, the real question isn’t whether a home is valuable, but whether its value can be used when it matters most. 

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