This article will explore ways a Reverse Mortgage in California may help combat the rising costs associated with inflation. Presented by John Correll, CRMP certified reverse mortgage professional in California.

What is inflation and how does it impact those in California?

Inflation means that over time, things become more expensive in an economy including many of the things that we buy as consumers like food, housing, energy and services. We measure it as a percentage, usually annually. As inflation goes up, your money can buy less because prices are rising.

California has always had a higher cost of living compared to most of America. Expensive real estate prices and higher salaries and taxes have made the “golden state” a more costly place to live historically.

Inflation and those on fixed income.

For those who are retired in California and on a fixed income, recent years have seen a surge in the price of everything from food, to gas, housing costs, healthcare expenses and general living costs. For those on a fixed income – inflation can be quite problematic and presents new challenges. While there have been increases in social security and other retirement income sources, many are still left short and meeting day to day expenses can be difficult.

Reasons a California Reverse Mortgage Might Help During Inflation

Here we will review several key factors that may make taking a second look at a reverse mortgage in California a compelling choice for those looking for options now that inflation seems to be everywhere.

High California Real Estate Prices Offer Home Equity Options With a Reverse Mortgage

One positives of inflation for homeowners is that home prices in California have risen dramatically in the past few years and decade. For many older homeowners who have owned their home for a significant period of time now find themselves with a lot of new home equity wealth. Unfortunately, home equity can only be accessed by one of two ways: selling the home or leveraging it by taking out a mortgage or other loan.

Qualifying for a California Reverse Mortgage vs Traditional Home Equity Loan

All mortgages including reverse mortgages have a process to qualify for the loan know as underwriting. A “traditional mortgage” or even a home equity line-of-credit can often times require substantial income or more difficult underwriting requirements than are required by reverse mortgage lenders. Many borrowers who have ended up securing a reverse mortgage did so after exploring a traditional home equity loan and found there to be advantages with a reverse mortgage.

Higher Interest Rates Mean Higher HECM Reverse Mortgage Line of Credit Growth Rate

Some people think they are too late to get a reverse mortgage because the Fed has raised rates so aggressively. While rates have gone up significantly as we emerged out of the pandemic, higher interest rates are not all bad when it comes to reverse mortgages. In fact, one might argue that when it comes to reverse mortgages and the HECM line-of-credit, higher rates can actually be good for the borrower with a large available line-of-credit long term as the interest rate impact the growth feature of the line-of-credit on HECMs.

Visit this page to take deeper look into the California HECM Reverse Mortgage Line-of-Credit.

What is the Growth Feature on a HECM Reverse Mortgage in California?

Unlike most traditional HELOC (home equity line-of-credit) loans where the size of the line-of-credit is fixed and established at the time of closing, with a HECM reverse mortgage the line-of-credit has the potential to grow bigger over time after closing. This can mean additional borrowing power for the borrower who leaves funds in their available line of credit and waits to draw all the funds right away.

A reverse mortgage line of credit is a flexible way for the borrower to access money from the reverse mortgage as and when they need it. The amount of credit the borrower is eligible for is determined based on a few factors at time of closing.

How HECM Reverse Mortgage Line of Credit Growth Feature Works

Now, one of the standout advantages of this HECM line of credit is its growth feature. Here’s how it works: the part of the credit line proceeds that the borrower hasn’t used or drawn out are called the “available line of credit”. This amount available to the borrower that is kept in the line-of-credit (and not drawn out) can actually increase over time. (it grows bigger at the current interest rate plus the MIP mortgage insurance rate).

For example: Let’s assume a HECM borrower has $100,000 in their available line of credit and their interest rate is 7.0% and the MIP rate is 0.50% and they don’t use the funds for the whole year and they let them sit in the line-of-credit and they also keep their reverse mortgage in good standing.

One year from now that $100,000 in available borrowing power would be now be around $107,500 in available borrowing power in their line-of-credit.

Higher Interest Rate = Higher HECM Line-of-Credit Growth

This means for a HECM reverse mortgage borrower that leaves a portion of the line untouched, the available line-of-credit has the potential to grow. As it grows, the borrower gains access to more funds than initially available. When interest rates rise, the growth rate simultaneously rise. This has attracted the attention of many financial planners.

NOTE: However, it’s essential to note that this growth doesn’t apply to the funds the borrower already withdrawn. It only happens on the portion of the line of credit that remains untouched, providing them with an expanding source of financial support for the future. This can be a valuable asset for borrowers looking to manage their finances effectively and secure additional financial flexibility as they age.

Reverse Mortgage Amortization Schedule Illustrates Growth Feature

Does this talk about growth rate on line-of-credit have your interest peaked? The best way to see it in action is to request a personalized proposal which includes an amortization schedule including how the line-of-credit could grow bigger for you over time.

Request Your Personalized California Reverse Mortgage Amortization Schedule Including Line-of-Credit Illustration

Give us a call at (888) 603-1550 or use this link to help determine if you qualify for a reverse mortgage and what your specific numbers could look like if you did a reverse mortgage.

California Reverse Mortgage Line-of-Credit Can Offer Extra Funds to Meet Higher Living Costs During Inflation

Funds from the reverse mortgage line-of-credit can be drawn as needed by the borrower and can be used for anything the borrower needs. As inflation makes everything more expensive, having an additional source of funds to access while in retirement can make sense.

Popular Uses For Reverse Mortgage Proceeds in California to Bridge Shortfalls Caused by Inflation

• Supplement monthly income
• Fund Home Improvement Projects
• Cover the rising cost of medical expenses
• Pay for a caregiver in the home
• Consolidate other debts into the reverse mortgage to lower monthly expenses
• Cover unexpected repairs or unplanned emergency expenses
• Take vacation or pay for new hobbies or leisure activities

Reverse Mortgage for Inflation Protection

Quick summary and further concepts to consider:

• Inflation has driven up home prices
• Home equity is at record levels in California
• Cost of living in retirement has gone up due to inflation
• Reverse mortgages can unlock a portion of home equity wealth for some homeowners
• HECM reverse mortgage growth rate on line-of-credit increases when interest rates rise higher
• Borrower utilizes reverse mortgage proceeds to make up shortfalls in expenses caused by high prices due to inflation

Explore a California HECM Reverse Mortgage as a Hedge Against Inflation

I invite you to give me a call to discuss your situation and your goals. Together we can review if you qualify for a reverse mortgage and what a reverse mortgage line-of-credit might offer you. You can reach me at (888) 603-1550

Sincerely, John Correll, CRMP

-John Correll, CRMP 

California Certified Reverse Mortgage Professional John Correll CRMP

(619) 294-9820  |  (888) 603-1550

Accurate Reverse Mortgage Corp.

4025 Camino Del Rio S., Suite 339

San Diego, CA 92108

Licensing Info:

NMLS # 2484031, 1004396 CA Bur Real Estate Broker # 02214678, 01353015