The Bond Market took a radical turn for the worse this past week, which dramatically upset the Reverse Mortgage applecart. Lenders were scrambling all week as investors unloaded U.S. Treasuries and gold in favor of commodities such as wheat and oil. A sell-off of Treasuries moves the price down, which has the opposite effect on the rate, so rates rise. This has been happening gradually as I wrote here two weeks ago, but this was a large move in the last few days. Normally, worldwide problems such as we have been witnessing in Egypt, will drive money into Bonds and gold as safe investments, but with the rising prices of food and oil, these commodities became the money magnets. Couple this with the Fed’s insistance on printing money, and we had the perfect storm descending on interest rates.
This has a double edged effect on the Reverse Mortgage markets. As with any sort of loan, a higher rate makes the loan more expensive in the long term. The double whammy for Reverse Mortgages is that higher rates will reduce the principal amount one can borrow. For many Reverse borrowers, this will not affect their decision to go ahead with their loan, but for those who need all the money they can get to satisfy an existing mortgage, this can have a negative effect on their decision.
Hopefully, the markets will settle down now that the Middle East seems to be quieting, but I do think overall we’re going to be in a rising interest rate market for awhile. If you are on the verge of deciding to go with a Reverse Mortgage, I would advise doing it sooner rather than later – but only if it’s right for you. Never let fear enter into any decision.
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