Is Now the Right Time to Get a Reverse Mortgage?

by Peter G. Miller, September 23rd, 2008

The financial events of the past weeks raise a question: Is now the time for a reverse mortgage?

And if not now, when?

Reverse mortgages are not for everyone, but if you have an interest in such financing now may well be one of the best times to consider such a loan.

reason? Well, several actually.

First, interest rates have come down with the federal take-over (nationalization) of Fannie Mae and Freddie Mac. No one knows how long such rates will last, or even if they could go lower, but the thinking here (for what it may be worth) is that higher interest levels are in our future.

The reason I see higher rates ahead concerns the value of the dollar. The federal government keeps printing money, the balance of payments situation is woeful, the deficit is massive and about to get far worse and the government keeps on spending. One example of what’s going on concerns the Euro — it used to be worth less than a dollar but today it takes about $1.45 to get a single Euro.

Look at the Canadian dollar. It was worth less than the U.S. dollar forever. Not so today.

Or, look at oil prices. The reason oil prices are at ridiculous heights is that producers want more U.S. dollars to buy each barrel because dollars have less purchasing power today than in the past.

In other words, the real worry is inflation. If the dollar buys less then investors and producers want more of them. In terms of mortgages, inflation means higher rates, something reverse mortgage borrowers want to avoid.

Second, FHA reverse mortgages are insured by the federal government. As you watch banks and brokerages go out of business what’s the first worry of depositors? Can they get their money out? With many reverse mortgages not all money is paid out up front. There may be more money to access — if the lender is solvent and can advance the dollars.

But what if the lender is not solvent? If you’re a borrower with an FHA reverse mortgage HUD will step in to assure you receive your money with what is called a “demand” claim. In effect, reverse mortgages backed by the FHA are insured by the full faith and credit of the United States government. That’s as good as it gets.

Third, home values have tumbled across much of the country. What if they erode further? The size of a reverse mortgage is impacted by the size of your equity — less equity means access to less cash. If lower home prices are in the future, then the time to finance and refinance is now.

Reverse mortgage costs and features vary. If the idea of such financing is now appealing be sure to shop around. Ask about rates, terms and costs. Ask about the lender. Get answers in writing.

And before you sign anything, get assistance from an outside authority such as an attorney who specializes in elder law. (Or, at the very least include a personal advisor, a member of your family, or trusted friend. GB)