Homeowners ages 62 and older collectively own $9.2 trillion in home equity wealth. But since the 2008 housing bust, very few have accessed the wealth stored in their home equity—even though many older homeowners have low incomes and lack sufficient retirement savings.
Although home equity usage remains very low, our analysis of Home Mortgage Disclosure Act (HMDA) data from 2018 to 2020 shows that low mortgage interest rates and home price gains are motivating more homeowners to extract equity. But within the broader trend of older homeowners increasingly tapping the wealth in their home equity, disparities exist between racial groups.
Older Black homeowners in particular are being left out of the opportunity to access wealth in their homes. This trend could further exacerbate the racial wealth gap that is partially rooted in discriminatory lending practices and racist housing policies that denied Black families equal wealth-building opportunities. It could also limit Black owners’ ability to tap home equity to improve their retirement security, pay off high-interest debts, invest in home improvements, and make intergenerational investments like paying for their children’s education.
Overall, older homeowners are increasingly tapping their home equity to build wealth
Historically, US homeowners have extracted equity from their homes in one of three ways: cash-out refinancing, home equity lines of credit (HELOCs), and reverse mortgages, primarily US Department of Housing and Urban Development (HUD)–insured home equity conversion mortgages (HECMs).
We found that the combined number of cash-out refinance, HELOC, and HECM loans made to seniors ages 62 and older increased from 647,000 loans in 2018 to 759,000 in 2020. The increase was driven almost entirely by cash-out refinances. As borrowers rushed to take advantage of lower rates by refinancing, many used it as an opportunity to take some cash out.
The number of cash-out refinance loans made to seniors ages 62 and older increased from 270,302 in 2018 to 442,454 in 2020, a 63 percent increase. Additionally, the median loan amount for cash-out refinances increased from $180,000 in 2018 to $205,000 in 2020.
Compared with cash-out refinances, HELOC originations to seniors ages 62 and older declined during this three-year period. This reflects the sharp drop in interest rates in 2019 and 2020 (which improved the economics of cash-out refinances relative to HELOCs) and the convenience of extracting equity in a single refinance transaction. In addition, a HELOC is a bank portfolio product that requires pristine credit scores, typically around 770, further limiting its appeal to homeowners.
Although HECM loans saw healthy growth from 2018 to 2020, volumes continue to remain low for several reasons. Just under 43,000 HECM loans were originated in 2020, roughly 30 percent higher than the 33,000 loans made in 2018.
White homeowners have accounted for almost all the increase in equity lending, while Black homeowners have seen a drop in equity loans
The use of cash-out refinances to extract equity varies widely by race, and significant gaps exist between white homeowners and homeowners of color. White homeowners ages 62 and older saw a measurable increase in home equity lending from 2018 to 2020 by loan count. Senior homeowners of color, on the other hand, collectively saw almost no increase. In other words, nearly all the increase in equity lending to seniors from 2018 to 2020 can be attributed to white homeowners.
The number of cash-out refinance loans originated to white, Latinx, and Asian borrowers ages 62 and older increased from 2018 to 2020, but cash-out refinance lending to older Black homeowners decreased. Combined with the across-the-board drop in HELOC lending and a small increase in HECM lending, older Black homeowners experienced a net decline in overall home equity lending from 2018 to 2020.
If we look at cash-out refinance loans as a share of all originations for each racial and ethnic group, we find that among Black borrowers ages 62 and older, the cash-out share declined more than 10 percentage points, from 29.2 percent in 2018 to 18.0 percent in 2020. This was the largest decline among all groups.
For white borrowers, the cash-out share remained unchanged (20.4 percent in 2018 to 20.3 percent in 2020); for Latinx borrowers, it fell from 25.6 percent to 22.4 percent (3.2 percentage points); and for Asian borrowers, it fell by 1.2 percentage points from 20.5 percent in 2018 to 19.3 percent in 2020. This broad decline in the cash-out share isn’t surprising, given the skyrocketing increase in rate-refinance activity.
Home price appreciation appears to be driving equity extraction
How much does home price appreciation explain the growth in overall home equity extraction? To answer this question, we compared the 2018–20 growth in home equity lending (by loan count) for homeowners ages 62 and older with the cumulative change in home prices from 2012 to 2020 by core-based statistical area.
We found that home equity lending is positively correlated to home price appreciation rates: geographies that have exhibited strong home price growth have generally experienced larger growth in equity lending.
Reducing barriers to home equity lending can ensure all owners have the opportunity to access the wealth stored in their homes
These findings show that although senior home equity extraction activity remains very low relative to the $9 trillion available in home equity wealth, rising home prices and falling interest rates have likely motivated some older households to tap their home equity.
But the decline in equity lending for older Black households at a time of rising house prices and ultra-low interest rates merits close attention. Black homeowners are less likely than other racial groups to be able to refinance their mortgages when rates fall, which prevents them from lowering their monthly payments.
The decline in home equity lending to Black homeowners is further evidence that Black owners do not experience the same degree of benefits from homeownership as white homeowners. The inability to tap housing equity can hinder their ability to improve their retirement financial security and invest in home improvements. It will also exacerbate the racial wealth gap because it will limit Black owners’ ability to use home equity at today’s low rates to pay off higher-interest debt, such as student loans and credit cards.
Policymakers can mitigate these challenges by making it easier to qualify for refinances generally, improving financial literacy around reverse mortgages, and exploring new products that rely on shared equity. Reducing barriers to sustainable housing equity extraction can help ensure that all older homeowners have equal opportunity to access the wealth stored in their homes.
The Urban Institute has the evidence to show what it will take to create a society where everyone has a fair shot at achieving their vision of success.