Now or Later? That is the Question

Shannon Hicks April 25, 2016 2

The Cost of Waiting & Hedging Against Falling Home Values

reverse mortgage newsPerhaps it is laughable to some to even consider hedging against falling home values. After all homes across the nation have appreciated nearly to their pre-housing crash levels. How quickly many homeowners forget the harsh lesson learned in 2009 that what comes up may come down. The truth is beyond being a source of cash flow or a retirement planning option, reverse mortgages can help older homeowners hedge against the risk of falling home values. Even worse, those who wait for their homes to appreciate could end up losing a substantial portion of their borrowing power when interest rates increase.

Jack Guttentag, better known as The Mortgage Professor, addressed the considerations of waiting to get a reverse mortgage in his recent column in the Huffington Post entitled “Should You Take a Reverse Mortgage Now, or Would It Be Better to Wait?

Guttentag begins by describing the notable difference in the sense of urgency that a homebuyer has versus a potential reverse mortgage borrower. “ A prospective home buyer…

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  1. John A. Smaldone April 25, 2016 at 11:39 am - Reply

    Some good points but taking out a reverse mortgage should never hinge upon whether or not external forces such as rising interest rates and home value appreciation should be part of the decision to go forward or not!

    The need is what is important, gambling on appreciation of home values or interest rate fluctuations can never be predicted in a volatile and unstable world economic and hostile environment that we are in today!

    The need is always the number one factor, if it fits the need or desire of today, go for it, don’t gamble on what may never happen!

    John A. Smaldone

    • James E. Veale, CPA, MBT April 25, 2016 at 10:37 pm - Reply


      Unfortunately, here is where our views diverge.

      We all tell prospects who fail to qualify due to either the home value being barely too low or the expected interest rate rising just slightly over the past week to wait and keep watch because with little changes at all, they could easily qualify. Sometimes waiting a few days for closing can mean that the youngest borrower will be a year older in HECM years, perhaps yielding in a slightly higher principal limit factor with no fear of a higher expected interest rate or a drop in home value.

      You are right that the rule is to avoid waiting since anything can happen but with little volatility, waiting can have its place but it would be rare since the concern over waiting is lower principal limits due to lower home values, higher expected interest rates, or a combination of both.

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