Reverse Mortgage Loan Blog

The problem: My parents have lived in their home 36 years and own it outright. My mom is ill and does not work. My dad, 71, wants to get a reverse mortgage. Is this bad timing with the housing market down?

The expert: Dennis Haber, attorney at law, Jericho.

The rules: Reverse mortgage benefits are determined by the home’s value (up to a limit), the borrowers’ age and the expected interest rates. FHA/HECM reverse mortgage programs have two interest rates: The “note rate,” which determines the repayment amount when the reverse mortgage becomes due; and the “FHA expected interest rate,” which partially determines how much money you get from a reverse mortgage. The note rate is currently around 3 percent and the expected rate is also low, meaning higher benefits to borrowers.

The strategy: A declining real estate market does not necessarily affect the benefits of a reverse mortgage. The home value amount used to determine benefits is currently at $362,790 in the New York Metro area. It is expected to increase to at least $417,000. The “value amount” limits how much of a home’s value is counted in the reverse mortgage calculation.

How it works: Let’s say your parents’ home had a fair market value of $450,000 a year ago and is valued at $427,500 today. Since it still is valued above the current FHA limit, their benefit amount would not be affected by the housing downturn. If their home is now valued at less than $362,790, however, their benefit amount would be reduced.

The results: More important than the timing is the decision as to whether a reverse mortgage is the right overall choice for your parents. Encourage them to get professional advice on whether a reverse mortgage fits into their long-term financial prospects, what they would do with the money, and how a reverse mortgage would affect your mother’s ability to get government long-term care benefits if she needs custodial care in the next few years.

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