Record setting home price increases enable older homeowners the ability to increase financial security and facilitate aging-in-place.
George A. Downey, August 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.
Clearly, housing wealth (home equity) has achieved levels never imagined. While the future of home prices is uncertain, a reverse mortgage may enable older homeowners the ability to take advantage of this phenomenon and permanently lock-in the current value and convert a portion of home equity to cash and/or a guaranteed line of credit.
Who should consider a reverse mortgage and why?
Every homeowner approaching, or in retirement, should learn about the potential, and determine if one might be a good fit for their needs and circumstances. They are not suitable for everyone. However, If the fit is right, a reverse mortgage can be a valuable and versatile resource that can increase and extend financial security.
Education is key—learn everything: (1) the pros, cons, and how they work; (2) common misconceptions, and (3) determine your eligibility and suitability. If it appears to work for you, understand why. If not, why not?
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 guaranteed by the federal government and determined by a formula that includes one owner’s age (62 and older), current market value, and current interest rates.
Most importantly, the loan terms and amounts are locked-in and unaffected by any future economic, financial market, or real estate property value declines. Thus, the loan terms are determined at the outset and guaranteed for the life of the loan.
Reverse Mortgage Overview
• No monthly payment obligations—voluntary payments are permitted but not required.
• Credit line growth—the undrawn balance of the credit line grows (compounding monthly) at the same rate charged on funds borrowed providing more funds in the future.
• No maturity date—repayment not required until no borrower resides in the property.
• Non-Recourse loan—no personal liability.
• Repayment of loan balance can never exceed the property value at the time of repayment. 100% of surplus goes to owners or heirs. Any deficiency is paid by FHA insurance.
• Access to funds and loan terms are guaranteed—cannot be frozen or cancelled if the loan remains in good standing.
• Borrower obligations (to keep loan in good standing) are limited to:
o Keeping real estate taxes, homeowner’s insurance, and property charges current;
o Providing basic home maintenance;
o Continuing occupancy as primary residence.
TO LEARN MORE
Get the facts and determine if, or how, the various options to utilize housing wealth may enhance your needs and circumstances. For more information, visit the National Reverse Mortgage Lenders Association (NRMLA) website www.ReverseMortgage.org, or contact the author with questions and/or a private consultation.
George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank branch located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey direct at (617) 594-3666 / firstname.lastname@example.org