Before we answer that question, it is important to understand that the amount of money that you can borrow utilizing a reverse mortgage is based on three primary factors:
- The age of the youngest borrower
- The value of your home
- Current interest rate
Generally speaking, the older the borrower is, the higher the borrowing percentage is with a reverse mortgage. For example, a 65-year-old client historically was able to borrow around 50% of the value of their home. At 70 years old, they could potentially borrow 56% of the value of their home. This was when interest rates were around 3.5%. While many people understand the first two factors, the third factor (interest rates) has a significant impact on borrowers borrowing capacity.Therefore, as interest rates have risen significantly since the end of 2021, the borrowing percentage has decreased, and dramatically. So now for a 65-year-old client, instead of being able to borrow around 50% of the value of their home, now they can only borrow around 42.4% of the value of their home. This is roughly a 7.5% decrease in the overall accessibility of one’s home equity. For example, on a $550,000 home value, that means a 65-year-old can borrow $44,000 less money.On the flip side, we have seen a significant appreciation in home values over the last year. Therefore, the amount of money one can access might be less percentage wise, but if the home appreciated 10%, they could actually borrow more money in the end.
Overall, even though interest rates have gone up significantly in the 1st quarter of 2022, given the significant home appreciation over the last 2 years, this is still a great time to look at your home financing options. Interest rates are expected to go even higher this year and this will continue to reduce the amount of money one has access to in their home. Please do not wait, please call us with any questions that you have or to schedule a complimentary consultation to evaluate your options.
Lastly, and extremely important to note is that rising rates do in fact have a positive impact on those who already have a reverse mortgage with a line of credit. The reason is that the available funds in your line of credit are growing by the interest rate. Therefore, as interest rates go up, the amount of money you have available is then growing at a higher rate as well. More on this in a later post.