Turn on the news today and you’ll hear plenty about mortgage rates, the 10-year Treasury, inflation, and what it all means for homebuyers.
Most homeowners immediately think, “Higher rates mean higher monthly mortgage payments.”
That’s absolutely true for a traditional mortgage.
But reverse mortgages play by a completely different set of rules.
While both traditional mortgages and reverse mortgages are influenced by movements in the 10-year Treasury, they affect homeowners in very different ways. Understanding that distinction can help you make better decisions about your retirement rather than simply reacting to the latest headlines.
The 10-year Treasury has experienced significant swings over the past several years as investors have reacted to inflation, Federal Reserve policy, economic growth, and government borrowing. Those movements influence mortgage pricing throughout the lending industry.
When most people hear that mortgage rates are rising, they’re thinking about buying a home or refinancing an existing mortgage, where the interest rate directly affects the required monthly payment.
A reverse mortgage is fundamentally different. As long as the homeowner continues to meet the loan obligations, such as paying property taxes, homeowners insurance, and maintaining the home, there is no required monthly principal and interest payment.*
Because of that, the interest rate doesn’t affect monthly cash flow the way it does with a traditional mortgage. Instead, the expected interest rate primarily affects how much equity is available through the reverse mortgage and how the loan balance grows over time.
Imagine two homeowners. Homeowner A has a traditional mortgage. If rates fall by 1%, refinancing could reduce their required monthly mortgage payment* by hundreds of dollars. Homeowner B is considering a reverse mortgage. A lower expected rate may increase the available proceeds, but it doesn’t reduce a required monthly mortgage payment* because there isn’t one. They’re designed to address two completely different financial opportunities.
The more important question becomes: What role do you want your home to play in your retirement? Do you want it to create retirement income, eliminate financial stress, help you age in place, or preserve as much equity as possible for your heirs? There isn’t one right answer. Some homeowners want to preserve every dollar of equity. Others decide that using a portion of that equity to improve their quality of life today is worth the tradeoff.
The real decision isn’t where mortgage rates will be next month. The real decision is whether your home can help you accomplish the retirement goals that matter most to you.
*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.
Donald Battista, NMLS ID 2030959. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Arizona Mortgage Banker License 0926603. Florida Mortgage Lender Servicer License MLD1827. Louisiana Residential Mortgage Lending License 1025894. Oklahoma Mortgage Lender License ML012498. Texas Mortgage Banker Registration 1025894. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org
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