With growing concerns over the financial situation in the United States, it is no surprise that many seniors are having second thoughts over setting up a reverse mortgage. Especially for those who were burned when the real estate market crashed the first time, making a decision of this magnitude can be a scary process. Is the market stable enough to support your reverse mortgage? How are reverse mortgages affect by the real estate market anyway?
The Housing Market Now
It is no secret that the housing market is on the rebound. Values of houses are the highest they have been in a couple years, but there is growing concern that the bubble is going to “pop” a second time. These concerns, while understandable, are completely unfounded. With mortgage rates near record lows, this may be the right time to buy into a reverse mortgage.
Fixed Rate vs. Adjustable Rate Now
This is where you have to take a bit of a gamble. If you opt for a fixed rate reverse mortgage, then the rate you have now is locked in over the duration of the loan. This means that it does not matter what the market does; you will stick with this rate through the entirety of your reverse mortgage. This can be good or bad entirely depending on how the market performs. The upside of this option is that you will never be left out in the cold after the market performs poorly and your rates drops. The downside is exactly the opposite: you will never be pleasantly surprised by your rates unexpectedly going up.
Adjustable rates are the flipside of the fixed rate option as mentioned above. If the market performs well, you are better off than with a fixed rate mortgage, but if it does not perform well, then you are worse off than with a fixed rate mortgage. What are the implications of this idea?
For starters, the adjustable rate and fixed rate debate means that you have to try to predict the outcome of the market. If you think it will increase in the future, then you should do an adjustable rate reverse mortgage so your rates will have the chance to go up over time and take advantage of this movement. On the other hand, if you think the market will perform poorly, you should lock in the current rates offered by using a fixed rate mortgage.
At this point, you are more than likely wondering which is right at this very moment. On one hand, the outlook for the market is good which would suggest an adjustable rate mortgage. That being said, with mortgage rates nearing a low for recent history, it is tough to envision them getting that much better in the future. While they very well might go up, chances are they will not go up enough to justify the risk of another slump in the market. If you have any intent on keeping a reverse mortgage for the mid to long-term, then you should stick with a fixed rate.