The yield curve: what is it? When it is inverted, what does that mean? And what in the world are reverse mortgage loans even related to any of this?
The yield curve is defined as “a line that shows yields (interest rates), of bonds with similar credit rating but different maturity dates,” according to Investopedia.com. The yield curve's slope predicts future changes in interest rates and economic activity.
In essence, you should earn more interest the longer you are willing to let the government to borrow your money. It should yield less for a two-year bond than a ten-year bond. A two-year bond pays a larger interest rate (yield) than a ten-year bond, however, when the yield curve inverts.
What relevance does this have to reverse mortgages, then?
The Home Equity Conversion Mortgage (HECM), an FHA-insured reverse mortgage, bases the amount of money you can obtain from it on the ten-year Treasury index. If everything else is equal, the lower this index is, the more money you can get.
If you are thinking about a reverse mortgage, it is a positive thing that the ten-year bond rate is lower now than it was a month ago since you can qualify for more money with a lower ten-year bond rate.
How Your Loan Is Handled After Your Death
There are three possible consequences for your reverse mortgage when you pass away.
When a co-borrower is involved in a loan
If a co-borrower on the loan is still residing in the property, they can continue to receive any payments and take advantage of the reverse mortgage's perks. As long as the co-borrower can fulfil the conditions for residency, maintenance, and payment of fees, they may stay.
If your home is occupied by a “Non-Borrowing Spouse,”
The loan servicers should be contacted right away if your spouse, who is not a borrower, is still residing in the house when you pass away. Your NBS must submit documentation of home ownership, a copy of the most recent trust or will, a death certificate, and other documents as required by the FHA programme. Remember that the Non-Borrowing Spouse criteria were created to enable your non-borrowing spouse to remain in the house under the terms of the FHA programme. Different NBS regulations that apply to the proprietary programmes were communicated to you and your non-borrowing spouse with the help of an attorney at the time your reverse mortgage was issued.
Foreclosure
Lender may pursue a foreclosure action if there is no co-borrower and no heirs. They are required to repay the amount they lent plus interest. Foreclosure would be the only option if no one was available to collaborate with in order to achieve that goal.
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