When Should I Wait To Get A Reverse Mortgage Loan?
Many people think that they should wait until they’re older before getting a reverse mortgage loan because, generally, you can get a little more money as you get older. But let’s look at the factors that determine when is the best time. The reverse mortgage loan-to-value, or “principal limit factor” as we call it, is based on three factors:
- The value of your home
- Your date of birth
- Current interest rates
The more valuable your home, the more money you’ll receive. So a lot of people say, “Well, the best thing to do is to wait until I’m older, and my house is worth more because then I’ll get more money.” The fact is that it doesn’t make sense in the way that you look at scenarios when it comes to your long-term retirement planning.
A reverse mortgage loan will allow you to take out more money the older you are. The amount of your reverse mortgage proceeds increases by about 1% each year.
The lower the current interest rates are, the more money available to you. The higher the interest rates are, the less money you will be able to take out.
So let’s look at the factors behind this. First, the value of your house will probably go up, but we don’t know that for sure. We also know from 2008 that home values can go down. So it’s usually better to get a reverse mortgage now since you can always refinance if your home’s value goes up dramatically in the future. A reverse mortgage loan can also protect you if your home’s value decreases. It makes sense to lock in a specific amount and consider refinancing if the value goes up.
Now the second thing to consider is that you will get more funds available as you get older. However, if you use the reverse mortgage to convert all or a portion of your home’s value into a reverse line of credit (ReLOC), your credit line will go up faster than the amount of money available to you from the increase in your age. The best time to start the ReLOC is as soon as you qualify for a reverse mortgage at age 62 because that starts the line of credit growth in motion. Based on history, your ReLOC will grow by 4-6 % annually every year that you don’t use the money.
Lastly, let’s look at the impact of interest rates. Right now, we’re in a time of historically low-interest rates. Many financial analysts and economists believe it’s far more likely that future rates will go up, not down. They might stay low for an extended period, and that’s great, but that ensures you that you will get the most available money from your home’s value.
So the bottom line is that in most cases, it doesn’t’ pay to wait. You should look at your situation. Our loan specialists are here to help.
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Video by: Harlan Accola, National Reverse Mortgage Director, NMLS#277693 with Fairway Independent Mortgage Corporation.
November 21, 2018