Reverse mortgage payouts have fallen, but borrowers may still find value: AARP

Reverse mortgage industry professionals have spoken for months about the consequences of high interest rates on their ability to pursue business, and now AARP has taken a closer look at the impacts.

While higher rates are bad news for the mortgage industry in a broad sense, the impact on reverse lending is more nuanced, Bruce Simmons of American Liberty Mortgage in the Denver area explained to AARP.

“If a reverse mortgage can help your situation, it still makes sense for a lot of people,” Simmons told the organization. “There are so many people who can benefit from this today, even with the rates the way they are.”

These sentiments echo what Simmons shared with RMD at the beginning of this year when asked about how business is progressing after the general tumult observed in 2023. Inconsistent interest rate forecasts have made things challenging in his business, but different kinds of marketing — including a refocusing exercise on his existing marketing efforts — have helped to improve things, Simmons told RMD in February.

But a rise in interest rates also impacts the amount of money owed on the negatively amortizing loan, observed Stephanie Moulton, a longtime reverse mortgage academic researcher from Ohio State University.

“It might accelerate the growth of the balance and reduce, potentially, the equity when your heirs go to sell the home, because your balance is going to grow faster,” she told AARP.

But the utility of eliminating a forward mortgage payment still has the potential to add value for reverse mortgage borrowers, along with a raft of disbursement options such as a standby line of credit or monthly term payments, Simmons added.

Bruce McClary, senior vice president of the National Foundation for Credit Counseling (NFCC) also shared that while reverse mortgages can add value for borrowers in certain situations, the fee structure of a home equity line of credit (HELOC) could potentially make more sense for some seniors. But certain situations may make a reverse mortgage a better idea for some individual borrowers.

“[It] depends on an individual’s capacity to borrow, the reasons for borrowing and what they’re going to use the money for,” McClary told AARP. “The answers will be different depending on people’s financial circumstances and their goals.”