Reverse Mortgages and the Brexit Effect
With Britain’s recent vote to withdrawal from the European Union, Treasury Bond rates dropped dramatically, causing turmoil in the financial markets with the uncertainty of what the referendum would fully entail. But now with the new Prime Minister in place, the fall-out from the vote has stabilized, and financial markets will likely calm as well. In fact, some financial experts believe the United Kingdom’s decision to leave the EU could have a short-term positive impact on the U.S. housing market, including for reverse mortgages, because mortgage interest rates could fall further than the current average of 3.5%.
When bond prices rise, yields go down. This means that mortgage lenders can lower their rates. The expectation was that Federal Reserve would raise interest rates this year, but after the U.K.’s historic decision, hopefully interest rates will stay lower, longer. That’s good news for those in the U.S. looking to refinance their current mortgage or purchase a new home. And that includes retirees and empty-nesters who want to use a Home Equity Conversion Mortgage (HECM) to purchase a new home.
How does a reverse mortgage play into this?
A Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration’s (FHA) reverse mortgage program which permits you to withdraw some of the equity in your home either through a fixed monthly amount, a line of credit, or a combination of both. To qualify for a reverse mortgage program, borrowers must be at least 62 years old (and meet other eligibility requirements) to convert a portion of the equity in their homes into cash.
As rates fell after the Brexit vote, HECMs were affected too. In the week following Brexit, LIBOR HECMs, or ARMS, with a margin of 3.51% or less could pay the maximum Principal Limit. During the week prior, HECM ARMS with a margin of 3.59% or less could pay the maximum Principal Limit.
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Aging in Place
Typically, reverse mortgage proceeds are used to help senior homeowners age in place, helping them make their current homes more comfortable and accessible, or helping them pay for living expenses that aren’t fully covered by their main source of income. But because not everyone wants to age in place in their current home, some reverse mortgage programs allow seniors to use the money from their reverse mortgage to help fund the cost of a new home, or a second home. All situations are unique, so it’s important to speak with a reverse mortgage specialist to get the appropriate information before making a decision. If you’d like to speak directly to one of our team members and receive more information, please call us at toll free at (800) 596-3788.
Though it is too early to predict the future, long-term effects of Brexit on the U.S. housing market, for now it is getting some short-term help, and that is welcomed news for many U.S. homeowners interested in refinancing their outstanding mortgages, or buy their dream or retirement home.
Learn more about how people are using home equity conversion mortgages for purchasing homes:
Please keep in mind that the reverse mortgage industry is constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.