What Will Happen With A Reverse Mortgage?
August 8, 2011 by Bob Livingston
Dear Bob,
I have a reverse mortgage. What will happen with these if everything falls apart?
Thanks,
Sandra
Dear Sandra,
It depends on what you mean by falls apart. But let’s look at a likely scenario: hyperinflation. If hyperinflation occurs, the value of the dollar plunges. It begins to take so many dollars to do everyday things that the government compensates by printing new money with additional zeros. Ones become tens, tens become hundreds, hundreds become thousands, etc. If you have a mortgage, this works in your favor. Where you once were paid $1,000 per week, for example, you are now paid $10,000 per week. That $10,000 will still purchase the same amount of goods that the $1,000 bought, so you aren’t really being paid more, it just seems that way. Let’s say the mortgage on your house is $1,000 per month. It currently takes approximately one-fourth of your monthly pay to cover your mortgage payment. In a hyperinflation scenario, you are now receiving a paycheck of $10,000 per week. Your mortgage will remain at $1,000 per month, so now it takes only one-tenth of your weekly salary to pay your mortgage. If you have fixed-rate debt, hyperinflation will help you. (That’s why the government likes inflation.)
However, in a reverse mortgage, the payment you receive from the lender is a fixed amount. Unless the lender chooses to tie your payment to inflation — or that is written into your contract already — you will continue to receive that fixed amount. So if you currently receive $500 per month in your reverse mortgage, you will continue to receive that $500. However, that income will not keep up with inflation. I hope this helps.
Best wishes,
Bob
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