Soaring inflation, rising interest rates, looming recession, and fear are chilling the economy and the hot real estate markets leading experts to conclude home prices will decline

George A. Downey, January 15, 2023

According to the S&P/Case-Shiller U.S National Home Price Index, home prices increased by 11.33% (January 2020 to January 2021); 19.25% (January 2021 to January 2022); and 10.65% (September 2021 to September 2022). Overall, that’s a whopping increase of approximately 46% in less than three years – unprecedented and obviously unsustainable. As a result, home equity (housing wealth) has risen to levels never imagined giving owner’s their largest but most illiquid asset.

Storm Clouds Building – What’s ahead for Seniors?

As always, the [so-called] experts are divided on what’s in the future but growing numbers of reputable sources are projecting moderate to severe downturns may be coming for the financial markets and ultimately home prices.

If they’re right, the fear of running out of money in retirement is intensified as financial security is built on retirement income, savings, and home equity. Moreover, if declines should occur, seniors don’t have the time needed to wait for a hoped-for recovery.

So, what could older homeowners do, especially those who: (1) don’t want to sell, (2) give up home ownership, and (3) want access to home equity to supplement financial security?

Depending on individual circumstances, a reverse mortgage might be a solution for owners 62 and older with home equity (market value minus mortgage debt and liens) of approximately 50% or less of current market value.

Timing – When to consider a reverse mortgage?

Simple answer – when property values are high and the terms are a good fit for near- and longer-term financial plans. The leading program is the FHA insured Home Equity Conversion Mortgage (HECM) reverse mortgage. HECM benefits are determined by a formula that includes the youngest owner’s age (62 and older), current market value, and current interest rates.

Most importantly, the loan terms and amounts are locked in and not affected by any future economic, financial market, or real estate property value declines. Thus, the borrower’s interests are guaranteed and protected going forward.

Reverse Mortgage Overview

  • No monthly payment obligations – voluntary payments are permitted but not required. Monthly charges are deferred and accrue until the home is eventually sold.
  • Withdrawal options – credit line, periodic payments, lifetime income, or cash as needed,
  • Credit line growth – the undrawn balance of the credit line grows (compounding monthly) at the same rate charged on funds borrowed.
  • No maturity date – repayment not required until no borrower resides in the property.
  • Non-Recourse loan – neither borrowers nor heirs incur personal liability.  Repayment of loan balance can never exceed the property value at the time of repayment.  If loan balance exceeds property value at time of repayment the lender and borrower(s) are protected by FHA insurance.
  • Access to funds and loan terms are guaranteed – cannot be frozen or cancelled as long as the loan remains in good standing.
  • Borrower obligations (to keep loan in good standing) are limited to:
    • Keeping real estate taxes, homeowner’s insurance, and property charges current
    • Providing basic home maintenance
    • Continue living in the property as primary residence

TO LEARN MORE

Get the facts and determine if, or how, the various options to utilize housing wealth may enhance your individual needs and circumstances. For more information, visit the National Reverse Mortgage Lenders Association (NRMLA) website www.ReverseMortgage.org, or feel free to contact the author for a private consultation.

George Downey, Certified Reverse Mortgage Professional, (NMLS 10239), is the CEO and founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846) and Rhode Island (20041821LB), NMLS #2846.  Questions and comments are welcome.  Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com