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  • Price appreciation not calculated

  • Chris Brennan

    Member
    December 31, 2021 at 6:41 pm

    Home Value. You state “If your goal is to leave as much home equity as possible to your heirs as an inheritance, then obviously, a reverse mortgage doesn’t make sense. Again, the reverse mortgage is designed to convert equity into cash. Your loan balance will increase and your home equity will decrease over time.” You are assuming there is no price appreciation “over time”, or, am I missing something?

  • MyHECM Admin

    Administrator
    January 5, 2022 at 7:04 am

    Hi Chris, your comment made me chuckle because I’ve wrestled off and on with that paragraph for exactly the reason you stated. Yes, the statement assumes no home value appreciation. I wrote it that way for the sake of simplicity and because the broader point was that the HECM uses up equity over time. In reality, if the value of your home is appreciating, your equity may be increasing even as your reverse mortgage balance increases. This is especially true if your reverse mortgage balance is low and your home value is high. For example, if you have a reverse mortgage balance of $100,000 and interest and MIP are 5% per year (using round numbers for the sake of simplicity), then you’re adding roughly $5K to your loan balance. If the home is worth $500K and it’s appreciating at 5% per year, then your home value has increased by roughly $25K at the same time your reverse mortgage balance has increased by $5K. Your loan balance is increasing, but your home value is increasing faster, which means your equity position is increasing even though you have a reverse mortgage.

  • MyHECM Admin

    Administrator
    January 21, 2022 at 7:45 pm

    test reply

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