Record home prices and interest rate hikes create opportunities for older homeowners seeking financial security and retirement longevity.

By George A. Downey, September 15, 2023

Home equity (housing wealth) recently achieved levels never imagined. For example, home prices in Massachusetts reportedly increased by 11.33% (January 2020 to January 2021); 19.25% (January 2021 to January 2022); and 10.65% (September 2021 to September 2022). That’s a whopping increase of approximately 46% in less than three years—unprecedented and unsustainable. Moreover, the Federal Reserve’s policy to combat inflation increased interest rates to levels not seen since 2008.

While the future of home prices and interest rates are uncertain, a reverse mortgage may take advantage of this phenomenon by permanently freezing the current value and converting a portion of today’s home equity to cash and/or a guaranteed line of credit without the obligation to make mortgage payments that dilute retirement incomes.

Reverse mortgages take advantage of improved home values as they provide access to higher funding limits. Higher interest rates, although they increase interest accruals on borrowed funds, they increase the credit line growth rate, which increases funding for future needs.

Reverse Mortgage – A unique solution with lifetime guarantees.

The HUD/FHA insured Home Equity Conversion (HECM) reverse mortgage enables eligible homeowners the ability to access home equity to increase financial resources and extend retirement security.

The funding amounts are based on: (1) current market value, (2) age of the youngest owner (one must be 62 or older), and (3) current interest rates.

Unlike home equity lines of credit (HELOCs), which can be changed or closed at the lender’s discretion, HECM benefits and terms are guaranteed as long as the loan remains in good standing. Although HELOCs have been a mainstream solution for many homeowners, they lack the versatility and security older homeowners require.

Conversely, HECM terms are guaranteed by the Federal Housing Administration (FHA) insurance.  Most importantly, the terms and benefits will not be diminished by any adverse changes in the economy, financial markets, real estate values, or a potential lender failure.

Reverse Mortgage Overview

  • Loan terms are guaranteed—access to cash cannot be frozen, limited, or cancelled as long as the loan remains in good standing.
  • No monthly payment obligations—voluntary payments are permitted but not required.
  • Title to home does not change—the lender does not take any ownership interest in the home.
  • Flexible withdrawal options—credit line, periodic payments, lifetime income, or cash as needed,
  • Growing line of credit—the undrawn balance of the credit line grows (compounding monthly) providing access to more funds in the future.
  • No maturity date—repayment not required until no borrower resides in the property.
  • Non-Recourse loan—neither borrowers nor their heirs incur personal liability. 
  • Repayment of loan balance can never exceed the property value at the time of repayment. 

Good standing—Reverse mortgage borrower obligations are limited to:

  1. Keeping real estate taxes, homeowner’s insurance, and property charges current
  2. Providing basic home maintenance
  3. Continue living in the property as primary residence.

Suitability—Who should and should not consider a reverse mortgage?

Reverse mortgages are unique in their ability to convert frozen home equity to cash and/or credit with the objective of increasing and extending financial security. The terms, benefits and operation are different from traditional (forward) mortgages.

Every situation is different. Beyond meeting the qualification requirements, the consideration of suitability is equally important. Financial status, personal objectives, and family concerns are but a few of the factors that need consideration to determine if and how one could be a good fit, or not.

Education is the key to understanding if a reverse mortgage may be a suitable solution. The recommendation is to confer with an exam-tested and experienced Certified Reverse Mortgage Professional (CRMP) to help determine eligibility, suitability, and the best course of action for your situation.

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, or contact the author for a private consultation.

George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank office located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey direct at (617) 594-3666 / WWW.THEFEDERALSAVINGSBANK.COM/GEORGEDOWNEY