Columnists

Reverse Mortgages And What To Expect In 2017

Issue 51.16

2017 brings many uncertainties whether positive or negative in our markets.  Rising interest rates may have the biggest impact when it comes to our seniors in 2017 with respect to the current HUD insured reverse mortgage.

The stock market is enjoying a post trump bump in the market and an enthusiasm to 2017 that has created a rise in interest rates.   For the past several years we have been in a very low interest rate environment.  Low interest rates have helped many refinance their homes into lower rates and or payments and have helped many purchase a home with lower interest rates.

Over the past few weeks, and since the elections, interest rates have climbed significantly.  Interest rates climbing higher over expectations in the economy and the expectations that the fed will continue to raise short term rates that has resulted in a sharp impact on our rising mortgage rates.

Prior to the elections, the 30 year fixed mortgage was in the mid 3% range.  Today it has climbed nearly a full percent to mid to low 4% range of course depending on credit and many things, but on average we have seen the sharpest interest rate increase in mortgage bonds as we have seen in two years.

Many of our senior clients that are interested in a Reverse Mortgage need to look at the option sooner than later.  The Department of Housing has a floor with their expected interest rates and we have been below the floor for a few years now.  As interest rates increase and we go above the floor, than this dramatically affects the Reverse mortgage as we know it and the percentages today.

Keep in mind the higher the interest rate and the higher it rises above the HUD floor the less HUD will insure and thus lower the loan amount that lenders can offer.  So, rising interest rates could have an impact on this loan more than any other loan in the market place.  It means that if you are over 62 and you are going to buy a home today, for example you need to put down 50% of the purchase price to buy a home with the reverse loan and be able to secure it for life with no mortgage payments for both you and your wife.  If interest rates continue to climb and we exceed the HUD floor, than my senior client’s will start needing to put down greater than 50% to purchase the same home.  So, today if you are going to buy a 300,000 home and you need 150,000 – if interest rates continue to climb that same 300,000 home may cost 160,000 instead of 150,000.

Likewise if you are in a home and you would like to use the reverse mortgage to pay off the existing loan that you are making payments on, the higher interest rates climb above the floor means that the more equity you have to have in the home in order to use the reverse loan to pay off the current mortgage.

In summary, if you are looking at a reverse mortgage or the options that it brings, the sooner the better as not only do we look for changes with the HUD policies, but we also will have a negative impact on the reverse loan if interest rates continue to increase this coming year.

The sooner a client can take advantage of the loan the better because of interest rates today and the expectations they will continue to rise in the New Year.

Please contact your local reverse mortgage planner or financial advisor today to discuss the options and how that may impact you and your retirement plans today. Until next time, Brandon.

Brandon Hansen can be contacted at 435-674-9200.

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