The definition of the yield curve has been elusive. Inverted, what does that mean? Furthermore, please explain how this relates to the topic of reverse mortgages.
A yield curve is “a line that depicts yields (interest rates) of bonds of equivalent credit rating but different maturity dates,” as defined by Investopedia.com. One can predict future interest rate shifts and economic activity by looking at the yield curve's slope.
Your interest rate should be proportional to the length of time you are willing to lend your money to the government. Yields on two-year bonds should be lower than yields on ten-year bonds. The opposite is true when the yield curve inverts, and the interest rate (yield) on a two-year bond is greater than that on a ten-year bond.
Therefore, why does this matter with regards to reverse mortgages?
An FHA-insured reverse mortgage obtained by reverse mortgage lenders, also known as a Home Equity Conversion Mortgage (HECM), allows you to borrow up to a certain maximum amount based on the ten-year treasury index. If other factors are held constant, the lower this index, the higher your potential compensation.
If you're looking at getting a reverse mortgage, the fact that the ten-year bond is cheaper now than it was a month ago is excellent news, as it increases the amount of money you'll be able to borrow.
When You Pass Away, What Happens to Your Loan?
In the event of your death, your reverse mortgage could be paid off in one of three ways.
When taking out a loan with a co-borrower,
If a co-borrower still resides in the property, they will be able to keep receiving any payments made on the loan and reap the benefits of the reverse mortgage as long as they do so. As long as the co-borrower continues to meet the residency, maintenance, and payment terms, they are welcome to remain.
Assuming you have a “Non-Borrowing Spouse” at home
If your non-borrowing spouse is still living in the home after your death, they will need to notify the loan servicers as soon as possible. Your NBS will need to submit documentation proving ownership of the property, as well as a copy of the current trust/will and a death certificate, in order to qualify for the FHA programme. Always keep in mind that the purpose of the FHA's Non-Borrowing Spouse criteria is to ensure that your non-borrowing spouse can continue living in the property. At the time your reverse mortgage was generated, you and your non-borrowing spouse would have sat down with an attorney to go over the various proprietary program's NBS regulations.
Foreclosure
The lender may initiate foreclosure proceedings if there is neither a co-borrower nor any heirs to the loan. The sum they loaned, plus interest, must be returned to them. Without a partner to help get that done, foreclosure is the only other option.
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