April 20, 2016 by HECM Pro
A reverse mortgage can serve as an additional financial “insurance policy” that protects you against life’s “what ifs”. I can’t tell you how many clients I’ve talked to who have been hit out of the blue with big unexpected expenses or a loss of income. The last thing you need is to be caught flat footed and be forced to drain other assets at a bad time or not have any money on hand at all.
The great thing about the reverse mortgage is that you don’t have to take the money out if you don’t need it right now. Just get a HECM line of credit set up now so it’s ready to go if you ever need it in the future. The time to get fire insurance is not when your house is already burning, right?
4 Reasons a Reverse Mortgage May Be Unavailable in the Future
Just because a reverse mortgage is available today doesn’t mean it will be tomorrow. Here’s a few reasons why a reverse mortgage may not make sense in the future or may not be available to you at all:
- Higher interest rates mean less money. If rates rise in the future, you won’t be able to get as much money from a reverse mortgage. The principal limit (the total pool of cash you qualify for) decreases as rates increase. Rates are at historic lows right now, which means there’s no time better than now to get the most money you can from a reverse mortgage. In fact, rates are already so low that even if they decrease further from here (which probably isn’t likely), you won’t get any more money from a reverse mortgage.
- Lower property values mean less money. Home values have risen significantly in many areas of the country, which means many areas could be ripe for a correction. If home values fall, you’ll qualify for less money. If home values fall and interest rates rise, then you’ll get even less money.
- Deterioration in your credit or financial profile. If you find yourself accumulating debt because of medical bills, home repairs, a rising cost of living, or other unexpected expenses, it may make it difficult to qualify. If you have a lot of debt, you may not show enough residual income to meet the financial ability standards because of all your debt payments. And if you start missing payments on loans or credit cards or fall behind on property taxes, you may not meet the standards for satisfactory credit. A LESA can often make up for shortfalls in qualifying, but if you’re tight on equity the numbers may not work.
- Deterioration in the condition of your home – We all know that homes take maintenance over time. If you’re tight financially and not able to keep up with the maintenance of your home, it may be tough to get a reverse mortgage down the road. If an appraiser notes that your home needs repairs, you may be required to get them done at your own expense before the reverse mortgage can be completed. If you don’t have the money to complete the repairs, then you likely won’t be able to qualify.
Again, the time to get fire insurance is not when your house is already burning. Even if you feel like you don’t need the money now, you may need it in the future. Get the reverse mortgage set up now so that it’s ready to go in case you ever need to get your hands on cash quickly.