According to AAG, the first reverse mortgage was issued in 1961 to a widow in Portland, Maine. A banker, Nelson Haynes of Deering Savings Loan designed the loan to help the widowed wife of his beloved former high school football coach. The idea behind these loans has always been to help seniors in need. However, reverse mortgages in 2018 have evolved so that they now have many official protections in place to make sure that borrowers are secure. In fact, the loans have turned into great financial planning tools and not just a loan of last resort.
So, what is the future of these loans? Here are a few things you might not know about reverse mortgages in 2018:
1. Interest Rates May Rise
In December of 2016, the Federal Reserve raised interest rates for the first time since 2009. And, 2017 saw a few additional increases. The forecast is that rates will likely rise slowly through 2018.
There is good news and bad news on higher interest rates. On the plus side, the Fed will only raise rates if they think that the economy is strong. On the downside, higher interest rates can decrease the amount of money seniors can borrow through a reverse mortgage.
Calculate how much money you can borrow at today’s low interest rates.
2. Housing Prices Are High Now — Will They Hold?
The more your home is worth, the more money you can borrow with a reverse mortgage.
According to recent price information, home values are now higher (on an inflation adjusted basis) as they were before the 2006 housing crash.
However, if interest rates continue to rise, housing prices may fall because people can borrow less money.
3. Impact of the Trump Administration on the Reverse Mortgage Program?
Last July 2017, Ben Carson, Secretary of the Federal Department of Housing and Urban Development (HUD), remarked: “This [reverse mortgages] is a top priority for my department: To give seniors more opportunities, more alternatives, more choices, and, if desired, to help more people age in place.”
And, in the fall he implemented measures to make sure that the reverse mortgage program could continue as a viable program. In a statement, Carson said, “We’re taking needed and prudent steps to put the HECM program on a more sustainable footing.”
4. The Need for Reverse Mortgages May Increase
There are murmurs that Social Security and Medicare may experience cuts. And, there is the case to be made that inflation will increase.
If any of these things happen, it is sure to increase the need for reverse mortgages in 2018.
5. Baby Boomers Have a Lot of Mortgage Debt
Despite the tremendous housing wealth, today’s older homeowners are trailing previous generations in paying off their mortgages. Only around 50% of homeowners aged 65-69 were mortgage free in 2015.
Furthermore, evidence suggests that housing debt is straining the retirement finances of many baby boomers. If you have enough home equity, a reverse mortgage is one way to eliminate ongoing mortgage payments and reduce your financial stress.
6. Unpredictable Economy Means Seniors May Want to Increase Financial Flexibility
With the financial markets at all time highs… Many retirees are looking for flexibility in case stocks crash.
Getting a reverse mortgage is one way to increase your financial options. Instead of simply being able to earn money or withdraw from existing savings, a reverse mortgage gives you another financial resource — you can “withdraw” from your home equity. It may also act as a buffer for bad investment returns.
Now is a Good Time to Assess if a Reverse Mortgage is Right for You
Getting a reverse mortgage now can be an excellent way to protect yourself from unpredictability. Best of all, if you qualify for a line of credit, then you can minimize the costs of this loan since you do not pay interest on the money in the line of credit, but it is available for you to withdraw if you need it.
Use a reverse mortgage calculator to find out how much money you can get from a reverse mortgage now. Not sure the loan is right for you? Try the suitability quiz to assess if a reverse mortgage is a good fit for your needs, finances and values.
Estimate Your Reverse Mortgage Loan Amount
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