I’m often asked lately by new clients, as interest rates are on the rise, “Why do I care if interest rates are rising? I don’t make a monthly payment on a reverse mortgage” The immediate answer is, as interest rates increase, the amount that a person will qualify to receive from the reverse mortgage decreases. This is a direct DECREASE in the credit line loan dollar amount a person will receive to fund their retirement expenses. If home values in Grass Valley and Nevada City start to level off or even decrease, it’s a double whammy; this too will decrease the credit line loan amount.
The long term answer to why rising interest rates matter when considering reverse mortgage is that interest charges are added to the balance eventually due on the loan and the lower the interest rate the more cash equity is preserved for you or your heir(s) at the time the home is sold and the loan becomes due.
For example: iff you wait to get your reverse mortgage in place and the interest rates increase by even just one percent higher than they are now, instead of qualifying for $200,000, you would only qualify to receive $176,000.
An interest rate increase of just one percent, all other things being equal, would cost you $24,000. Odds are, that if you wait one year and rates increase, any additional increase in the value of your home and age, will not offset even a small increase in the interest rate.
It’s even more important to consider interest rates in a scenario like this:
Let’s say you qualify today to receive $200,000 from a reverse mortgage and you have a current loan against your home for $185,000. If you get the reverse mortgage today, you can pay off this loan against the home and still have $15,000 left over.
If you wait, and the interest rate increases by just one percent, you would only qualify for $176,000 which isn’t even enough to pay off the existing loan on the home. You would either have to pay (bring into escrow from your personal funds) the $9,000 difference to be able to pay off your existing mortgage or not be able to get the reverse mortgage loan at all.
This is why, without trying to scare anyone, I think it is much better to learn the facts and figure out if a reverse mortgage is right for you sooner rather than later.
I don’t know if interest rates will continue to increase or not. If during a loan process the rates go down, I make certain the client receives the lower rate at the time the loan is closed out.
Thinking in reverse is what I do well, and to the consumer these concepts I’ve discussed of how rising rates affect what a person and their home is qualified for in a reverse mortgage is easier to understand when you sit down with me after I have worked up your qualifying numbers and you can see this in black and white, so to speak. Contact information is below if you’d like to chat a bit and/or make an appointment with me to come to my downtown Grass Valley office.
===Grass Valley Local! Shawna McDonald, Reverse Mortgage Loan Officer, 13 year specialization solely in reverse mortgage loans, successfully having completed hundreds of them. Representing 11 of the largest reverse mortgage lenders; get great rates & local, personalized service in person, in Grass Valley, from loan start to finish. Visit my website www.SierraFoothillsReverse.com Available by confirmed appointment in my downtown Grass Valley office or by phone (530) 497-3010 NMLS #271335 | CalDRE #00585530 Zying Mortgage Inc. Company NMLS 76801 |Company CalDRE # 014461===