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Michael G. Branson, CEO of All Reverse Mortgage, Inc., and moderator of ARLO™, has 45 years of experience in mortgage banking, with the past 20 years devoted exclusively to reverse mortgages. A Forbes Real Estate Council member, he developed the industry's first fixed-rate jumbo reverse mortgage and has been featured in Forbes, Kiplinger, the LA Times, and Yahoo Finance. (License: NMLS# 14040) |
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Cliff Auerswald, President of All Reverse Mortgage, Inc., and co-creator of ARLO™ — the industry's first real-time reverse mortgage pricing engine — has 27 years of experience in mortgage banking, with 20+ years focused exclusively on reverse mortgages. A recognized expert in reverse mortgage technology and consumer education, he has been featured in Kiplinger, Yahoo Finance, Realtor.com, and HousingWire. (License: NMLS# 14041) |
Using a Reverse Mortgage to Combat Inflation
Michael G. Branson, CEO of All Reverse Mortgage, Inc. and moderator of ARLO™, has 45 years of experience in mortgage banking, with the past 20 years devoted exclusively to reverse mortgages. A Forbes Real Estate Council member, he has been featured in Forbes, Kiplinger, the LA Times, and Yahoo Finance. (License: NMLS #14040)
Cliff Auerswald, President of All Reverse Mortgage, Inc. and co-creator of ARLO™ — the industry's first real-time reverse mortgage pricing engine — has 27 years of experience in mortgage banking, with 20+ years focused exclusively on reverse mortgages. (License: NMLS #14041)
Have you considered a reverse mortgage but worried about inflation and rising interest rates? I recently had a borrower tell me that he was considering one but felt that he may have missed his opportunity before rates started to increase due to recent Fed rate hikes and inflation.
He stated that he probably would not benefit now, with all the uncertainty of the future. Based on everything that was going on in the economy (inflation, interest rates, etc.), he just did not think a reverse mortgage made sense for him. I told him that the loan was a personal decision for each borrower and needed to make sense for each person and their circumstances.
With inflation and interest rates in the news, a reverse mortgage line of credit is one option some homeowners look at, and whether it makes sense depends on your own situation.
HOW CAN INFLATION AND HIGHER RATES AFFECT A REVERSE MORTGAGE?
1. HOME VALUES AND HOW MUCH YOU CAN RECEIVE
Your home’s value is one of the factors that determine how much money a borrower will receive with a reverse mortgage loan, up to the HUD lending limit. Home values can rise or fall with interest rates and local market conditions.
A higher Expected Rate lowers the amount new borrowers can receive compared with an Expected Rate at or below the 3% floor.
2. HIGHER FUTURE RATES = INCREASED LINE OF CREDIT GROWTH RATE
Next, we discussed the effect of future rate hikes for borrowers who have reverse mortgages. On an adjustable-rate HECM, the unused line of credit grows at the loan’s interest rate plus the 0.5% annual mortgage insurance premium (MIP) rate.
Simply put, on an adjustable-rate loan, if rates increase and you still have a large line available that you have not yet borrowed, the unused portion of your line grows at a greater rate. Higher rates also make any balance you do borrow grow faster.
As an illustration only, if the rate on an adjustable-rate loan increases to 5% and you haven’t taken the funds yet, you are not accruing interest on them, but your available line is growing at 5 1/2% (5% plus the ½% annual MIP rate). If the rate comes back down later, the growth already added to your line stays available.
If you never use them you never accrue interest on them, but if you ever need them they are there for you.
3. UNLIKE A TRADITIONAL LINE OF CREDIT (HELOC) – HECM LINE OF CREDIT CAN NOT BE FROZEN
Another thing to keep in mind with a reverse mortgage is that unlike a Home Equity Line of Credit (HELOC), you have guaranteed access to the line of credit for as long as there are funds in your line. You sustain the terms of the program. Unlike the HELOC, you do not have to worry about a bank freezing your line because they are afraid your property value has gone down, your income is not the same, or they just don’t want to do those loans anymore.
And if you don’t think that can happen, talk to anyone who had their line frozen or closed sometime between 2009 and 2012. If they are like me, it happened when they were never late on their loan, they may not have had any or much balance owed on the line, and it might have happened just when they needed it most.
Under HUD’s HECM rules, a lender cannot freeze or reduce a HECM line of credit because your home’s value drops or your income changes, and HUD pays the borrower if a lender is unable or unwilling to make required payments. The funds available to you can still be limited in the first 12 months, set aside for repairs or property charges, or end if the loan becomes due and payable.
As long as you live in the home, pay your taxes, insurance, and any other property charges on time, reasonably maintain the home, and adhere to the terms of the loan, you will continue to have access to the funds still available in your line. If the lender doesn’t pay you on time under a reverse mortgage, you are entitled to a late charge from them, and your loan is backed by HUD.
Reverse Mortgage vs. HELOC: Feature-by-Feature Comparison
*Notes: HECM protected unless obligations unmet. Proprietary/HELOC can be frozen if values drop or payments missed (source: CFPB HELOC Brochure, accessed July 13, 2025). For more, see our HECM vs. HELOC Guide.
Compare Features HECM Reverse Mortgage
(FHA-Insured)Proprietary Reverse Mortgage
(Non-FHA)Traditional HELOC
(Home Equity Line of Credit)
Minimum Age to Qualify 62 55–62 (varies) No minimum
Line of Credit Term Lifetime 10 years 10–15 years draw period
Can It Be Frozen or Reduced? No (protected by FHA)* Yes* Yes*
Line of Credit Growth Yes, grows lifelong Limited Limited
Monthly Mortgage Payments Required No No Yes
Income Requirements Minimal (financial assessment) Minimal (financial assessment) Strict
Credit Score Needed No minimum No minimum 620+ typical
Savings/Reserves Needed No No Often required
Closing Costs Yes (can be financed) May be lower Yes (can be financed)
Fixed Interest Rate Option Available for lump sum Available Variable common
Rate Index CMT or SOFR (2025) Varies Prime rate
4. INVESTMENT PROTECTION
We are not licensed financial advisors, and we would always direct you to discuss all financial decisions with your financial planners before making any decisions. Still, we would encourage you to discuss the benefits and pitfalls of selling your investments in down markets and rising rate markets should the need arise.
A reverse mortgage can give you access to borrowed funds that you can choose to repay at any time without penalty or on which you can decide to make no repayments for as long as you live in your home.
Unlike other sources of funds, with a reverse mortgage, you do not lock yourself into losses by selling investments during down markets, and you can choose how much of your line to access and if you want to repay them early or make no mortgage payments and let the home repay the loan when it is sold.
You don’t deplete your investment assets, nor do you put yourself in a bind paying payments on loans which can have a double negative effect in a down market if you need funds. Still, many borrowers who come to us do so at the urging of their financial experts for just this reason. Again, we always recommend discussing your circumstances with your trusted financial advisor.
HOW HOME VALUES AND RATES CAN AFFECT YOUR REVERSE MORTGAGE
Only you can determine if a reverse mortgage is right for you. Home values and interest rates both affect how much you can receive, and neither can be predicted with certainty.
As the Expected Rate increases, the money borrowers receive under the reverse mortgage program for new loans goes down, and lower home values would reduce it further. Because neither can be predicted, a current quote shows what is available today.
I would never suggest that borrowers close a loan with the intent of refinancing the loan or only if the loan could be refinanced in the future. But there is always the option to refinance if the future lending and rate conditions are such that a refinance of the loan would benefit the borrower with better terms and more funds.
Home values and rates may be different by the time you apply, which can change how much you receive. A borrower who does not open a loan also cannot benefit from credit line growth, which on an adjustable-rate loan is higher when rates are higher. Comparing a current quote with your goals can help you decide.
SUMMARY
The bottom line is, if you are thinking about a reverse mortgage, compare what is available at today’s home values and rates and, on an adjustable-rate loan, how the unused line could grow after you close. No one knows exactly what the future will do or when.
If you have not considered a reverse mortgage and would not consider one, then I would never try to convince you to get one. However, if you are considering one, take the time you need to compare your options and talk it over with your family and your financial advisor. Please don’t hesitate to contact us if you have any questions.
FAQs
What’s the difference between a bank HELOC and a HECM line of credit?
A bank Home Equity Line of Credit (HELOC) is a line of credit secured by your home that a bank controls and can freeze or eliminate at any time (subject to the terms of the security instruments). This means that if the Bank decides to change the terms by lowering the line available or closing it entirely, the banks can do so at any time, with the only provision being they must honor the terms of the Note and Deed on any outstanding funds.
There is usually a draw period during which the payment may be for interest only, followed by the repayment period during which the payment can increase as much as 200 – 300%, and the loan balance must be repaid. Payments must be made even during the draw period when the costs may be interest only. Then later, when most senior borrowers’ incomes are lower, the payments can be considerably higher. A Home Equity Conversion Mortgage is also known as a reverse mortgage. Borrowers are not required to pay a monthly mortgage payment on a reverse mortgage but can choose to do so at any time, in any amount, without penalty.
Borrowers are guaranteed access to their full loan amount for as long as they still have funds available, and the lender cannot simply change their mind and decide not to offer the program any longer. The loan is not due and payable until the borrower no longer lives in the home or does not pay their taxes and insurance in a timely manner, so it is important that borrowers pay their taxes and insurance in a timely manner but then as long as they do and live in the home, they can continue to live in the home and access all their funds without having to pay a mortgage payment.
How does the reverse mortgage line of credit growth rate work?
On an adjustable-rate reverse mortgage, the unused part of your line of credit grows at a percentage equal to the loan’s interest rate plus the 0.5% annual mortgage insurance premium (MIP) rate. As an illustration only, if your loan interest rate is 3% and your MIP rate is 0.5%, the unused part of your line grows at a rate of 3.5% a year.
This is not interest you are earning as these funds are not in a bank account in your name. But since you are not accruing interest on them either because you have not borrowed them but you could have, the money you would have accrued in interest had you borrowed the money is added to the line of credit and made available to you to borrow later if you want or need it. For a borrower with a $200,000 line of credit that is not being used, this can really add up in just a few years. In this illustration, at the end of one year, instead of having $200,000 available, the borrower would have a line of credit of approximately $207,000 available.
In this illustration, if the rate does not change, the next year that line of credit would increase to more than $214,200. On an adjustable-rate loan the rate can change, so actual growth will vary. Again, it is not interest being paid to you and if you do take any money from the line, you would begin to accrue interest you owe on the money you draw but if you were able to wait for several years before you had to start drawing funds you would be able to experience a very nice increase in the funds available to you.
How do interest rates affect reverse mortgages?
Interest rates obviously determine the amount of money you or your estate will owe. The higher the rates, the more money you would owe if you choose not to make any payments and live in the home payment free which is the whole idea of having a reverse mortgage for most people. However, a reverse mortgage is affected by interest rates in other ways as well.
The amount of the funds you receive with a reverse mortgage is determined by the youngest borrower’s age, the property value or the HUD lending limit (whichever is less), and the interest rate on the Expected Rate. The expected rate is a longer-term rate than the rate you will even use to get your loan and will no doubt be higher than the rate at which you even close your loan or at which you accrue interest but HUD uses the 10-year index to determine the amount of money you will receive under the program.
HUD’s Principal Limit Factor tables start at an Expected Rate of 3%. At or below 3%, the factor for a given age is the highest in the table. As the Expected Rate rises above 3%, the factor generally falls, so the money available is lower, other things being equal.
When is the best time to take a reverse mortgage?
The amount available is highest when the property value is high and the Expected Rate is at or below 3%, the floor in HUD’s Principal Limit Factor tables. No one can say when those conditions will return. HUD has changed its parameters in the past, including lowering the Principal Limit Factors (the percentage of a home’s value available to a borrower, by age).
Whether to take a reverse mortgage, and when, depends on your own circumstances. If you take a loan and conditions improve later, you can look at a refinance if the terms then would benefit you. If you feel you are “too young” now, you can compare a quote today with what you might receive in a few years, since older borrowers generally receive more, and, on an adjustable-rate loan, consider how much the unused line could grow in that time.
And once you have your loan, as long as you live in the property and continue to pay your taxes and insurance, your loan is secure whereas if your income drops or if you have difficulties with payment of taxes, insurance, or mortgage payments due to future income interruptions, you are not in danger of qualification at that time.
How will inflation affect reverse mortgages?
It is difficult to say exactly how inflation may affect future reverse mortgages. It may require an adjustment to qualification methods. What HUD deems appropriate income to qualify now may be deemed too little during inflationary times. Obviously, higher interest rates will give borrowers much less on their Principal Limits (loan amounts).
Every increase in the Expected Rate above 3% (the floor in HUD’s Principal Limit Factor tables) means there is less money available to borrowers under the program. We wrote an article about how higher rates can affect borrowers. As an illustration, in HUD’s Principal Limit Factor table (case numbers assigned on or after October 2, 2017), a 62-year-old’s factor is 52.4% of the home’s value at a 3% Expected Rate and 43.9% at 4.5%, a drop of 8.5 percentage points.
As an illustration only, 8.5 percentage points of a $300,000 home’s value is $25,500 less available. For a 65-year-old with a $600,000 home, an Expected Rate of 5% instead of 3% lowers the available amount by about $67,200 (54.2% vs 43.0% of home value). These are examples, not predictions; actual proceeds depend on age, home value (up to HUD’s limit) and the Expected Rate.
If you would like more information, please visit All Reverse Mortgage or call us toll-free: (800)-565-1722 to speak with a licensed loan originator.
April 12th, 2023
April 12th, 2023