Equity consumption, home appreciation, and heirs

Million dollar homes are more commonplace than many would expect and with more affluent borrowers considering a reverse mortgage, the question arises: does a reverse mortgage make sense? Jack Guttentag’s (aka The Mortgage Professor) latest column in the Herald Tribune addresses the strategies and risks to consider with high valued properties. Guttentag compare two borrowers aged 62 with homes worth $636,150 (today’s HECM lending limit) and $1 million respectively. If both take the maximum tenure payment of $1,854 per month and remain in their homes until the ripe old age of 100, their loan balances would have ballooned to $2.75 million. This assumes a relatively unchanged interest rate for both borrowers..

However, the pivotal factor in this scenario is the assumed appreciation rate of 4%. With an appreciation rate of 4% the heirs of the lesser valued home would stand to receive about…

Download the video transcript here.