What a Senior Should Consider Getting a Reverse Mortgage in the 2022 Economy

A reverse mortgage – specifically a home equity conversion mortgage (HECM) – is often seen as a method for seniors to tap into the equity they have accumulated in their home to provide cash flow. additional. But some older homeowners might be rethinking the prospect of the loan given the current economic climate, according to Brian Kline, real estate investor and financial columnist, in a new RealtyBizNews.com article.

“With rising interest rates, soaring inflation and a potential recession on the horizon, many senior homeowners are apprehensive about the current economic landscape,” he wrote. “With the Federal Reserve repeatedly raising interest rates, some reverse mortgages are approaching the 8.5-9% range, with further Federal Reserve interest hikes likely. This presents a huge dilemma for people considering a reverse mortgage.

Indeed, higher rates may have caused some reverse mortgage prospects to miss an opportunity to secure a low-cost loan. However, some seniors may still be considering a reverse mortgage to try to take advantage of current rates before they go up, he says. Maturity events must also be taken into account, he explains.

“When the homeowner sells the property, moves out, dies, or in some cases defaults on property taxes and other expenses, the reverse mortgage balance becomes due in full,” he says. “This includes the principal amount borrowed as well as accrued interest and charges. Although you don’t make monthly payments on the loan, interest accrues, which means your outstanding balance grows each month. This means that the higher the interest rate, the more the outstanding balance will increase each month.

Since reverse mortgages are fixed or variable rate, changes in Fed interest rates have the ability to inform the benchmark interest rate from which variable rate reverse mortgages operate, says -he.

“Choosing a fixed rate HECM provides predictability of the amount of interest that will accrue on the balance,” he says. “However, these typically required you to take the funds as a lump sum.”

Borrowers should also keep in mind a series of common expenses for a reverse mortgage, he explains, because the loss of a monthly mortgage payment does not diminish the need to meet other related expenses to maintain the loan in good standing. These include interest, the annual mortgage insurance premium, property charges such as taxes, and various forms of insurance and management fees.

“The higher your loan balance and the longer you hold onto your loan, the more ongoing fees you’ll be charged,” he says. “The best way to keep your ongoing costs low is to borrow only what you need.”

Read it column at Realty Biz News.

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