Reverse Mortgages and the Softening Housing Market

One question we have been asked is: What happens to reverse mortgages as the United States housing market weakens. It is a good question.

There is no question the United States housing market is softening. Although prices may not yet be going down, and some markets remain relatively strong, as a whole the robust gains in real estate value across the country is over. Maybe not forever, but certainly for now.

Recently, new housing starts were down 20% and the number of houses being sold has slowed year over year. Houses are sitting on the market longer and long gone are the days where sellers get 25% over their asking price within days.

So what does the softening market mean for the reverse mortgage?

A reverse mortgage is a loan that is not paid back until death or permanent move. Moreover, the borrower can never owe more than the value of their house. Therefore, reverse mortgage lenders must be careful with how much money they lend. The amount of money they lend is based on a number of factors. They are: borrower age, location of property and importantly, the value of the property.

The first two factors determine a percentage of the property value. So a reverse mortgage is based on the value of the property. The property value is determined by an appraisal. As the real estate market weakens, appraisals are not as high for a given property. This means that the reverse mortgage borrower receives less money.

Over time, real estate values have gone up and have gone up relatively consistently. Does this mean that real estate will always go up? No. Does it guarantee home prices will be higher five or ten years from now? No. Anyone who says, “Real estate prices may not go up as fast, but they will never go down,” is flat out wrong. While we at the reversemortgagepage.com do not predict real estate prices, history does not bear out that values will always increase, even in a given period of time.

Does this mean that you should rush out and get a reverse mortgage before the value of your home goes down. No. It just means that you shouldn’t assume that your home will be worth more five years from now. A reverse mortgage should be obtained when the time is optimal for your financial situation. When that time is depends on many factors. For advice on timing, turn to the Reverse Mortgage Page.

About The Author

Byron Warnken is an expert on reverse mortgages and his company owns and operates a leading website that can help you learn about Reverse Mortgages.