By Tyler Plack
Tyler Plack is the Chief Executive Officer of South River Mortgage. He joined the company as a founding employee in 2017 and served as President before becoming CEO in 2026. Tyler holds an active FHA Direct Endorsement (DE) underwriting certification.
When the Federal Reserve raises interest rates, you may wonder what it means for you, your savings, your mortgage and your retirement.
The good news is that a rate increase does not mean you have to make a major financial move.
But it can be a good time to take another look at your finances—especially if you are a homeowner with significant equity in your home.
For some homeowners age 62 and older, a reverse mortgage may provide another way to use that equity to improve cash flow, pay off an existing mortgage or create a financial cushion.
Why Does the Fed Raise Interest Rates?
The Federal Reserve uses interest rates as one of its tools to influence the economy.
When inflation remains elevated, the Fed may raise its target federal funds rate to slow price increases.
But what happens at the Fed doesn’t affect every loan or financial product in exactly the same way.
Mortgage rates, credit card rates, savings rates, and other borrowing costs can respond differently.
That’s why it’s important to look at your own financial picture, rather than simply reacting to a Fed announcement.
What Should You Do When Rates Go Up?
Here are several things homeowners may want to consider.
1. Take a Look at Your Monthly Cash Flow
Higher interest rates can make borrowing more expensive.
At the same time, everyday expenses can continue to put pressure on your budget.
Take a close look at:
- Mortgage payments
- Credit card debt
- Home repairs
- Insurance
- Property taxes
- Medical expenses
- Groceries and other household costs
- Retirement income
- Money you have saved or invested
The goal isn’t necessarily to make a change.
The goal is to understand where you stand.
2. Look at How Much Equity You Have
Your home may be one of your largest financial assets.
Home equity is simply the difference between what your home is worth and your mortgage balance.
For example:
Home value: $500,000
Mortgage balance: $150,000
Estimated equity: $350,000
That doesn’t mean you can borrow the entire $350,000.
But it does mean you may have an asset that could potentially be used as part of your overall retirement strategy.
For a HECM reverse mortgage, the amount available depends on factors including the borrower’s age, the home’s value and the interest rate.
How Can a Reverse Mortgage Help When Rates Rise?
This is where things can get interesting.
A reverse mortgage isn’t designed to beat interest rates or eliminate them.
Instead, it can give some homeowners another way to use the equity they already have in their homes.
For homeowners who qualify, a reverse mortgage may provide several potential benefits.
1. You May Be Able to Pay Off an Existing Mortgage
If you’re still making a monthly mortgage payment, that payment may take a significant amount of your retirement income.
A reverse mortgage can generally be used to pay off an existing mortgage at closing, assuming the loan qualifies.
Afterward, HECM borrowers generally don’t have required monthly mortgage payments for principal and interest.
That can potentially free up money each month.
For example:
Imagine you’re paying $1,500 a month on your current mortgage.
That’s $18,000 per year.
Replacing that required mortgage payment with a reverse mortgage could potentially give you more room in your monthly budget.
Of course, taxes, homeowners’ insurance, maintenance and other property obligations still need to be paid.
2. You May Create More Financial Flexibility
A reverse mortgage doesn’t necessarily have to mean taking all available money at once.
With a HECM, homeowners may have different ways to receive proceeds, including a line of credit, monthly payments or a lump sum, depending on the loan structure.
A line of credit can be particularly useful for homeowners who don’t need all the money today.
You could potentially use available funds later for:
- Home repairs
- Medical expenses
- Unexpected bills
- In-home care
- Paying off debt
- Large purchases
- Supplementing retirement income
The important point is that you don’t necessarily have to spend money simply because it is available.
3. A Reverse Mortgage May Help You Avoid Selling Investments at the Wrong Time
This is another reason some retirees explore home equity.
Suppose you need $30,000 for an unexpected expense.
You could potentially sell investments to get the money.
But selling investments means taking money out of your investment portfolio.
Depending on your situation, accessing home equity instead may provide another source of funds to consider.
This doesn’t mean a reverse mortgage is automatically better than using investments.
It simply gives you another option to discuss with your financial professionals.
4. You May Have More Options Than You Think
One common misconception is that you need to own your home completely free and clear before considering a reverse mortgage.
That’s not necessarily true.
The CFPB says a HECM borrower can have a mortgage balance, provided the existing mortgage can be paid off at closing using the reverse mortgage proceeds or other funds.
That means someone with a mortgage may still want to explore whether they have enough equity to qualify.
What About Reverse Mortgage Rates?
This is an important question.
A higher Federal Reserve rate does not mean your reverse mortgage rate automatically changes by the same amount.
Reverse mortgage rates are influenced by market conditions and the specific reverse mortgage program.
And interest rates are one of the factors used to determine how much a borrower may be able to access through a HECM.
That’s why it’s important to look at the actual numbers for your situation rather than assuming that a Fed rate increase automatically makes a reverse mortgage better or worse.
Check your eligibility
A few details to help us understand your options.
What About an Existing Reverse Mortgage?
If you already have a reverse mortgage, a Fed rate increase doesn’t necessarily mean you should refinance or make a change.
Before doing anything, look at:
- Your current interest rate
- Your current loan balance
- Your available line of credit
- Your home’s current value
- Your current financial needs
- The costs of making a change
- Your long-term plans for the home
A new loan may have new costs and different terms, so refinancing should be evaluated carefully.
Don’t Make a Decision Based on One Rate Announcement
This may be the most important point.
When you hear that the Fed raised rates, it can be tempting to think:
“I need to do something now.”
You don’t necessarily do.
Instead, use the news as a reason to review your financial picture.
Ask yourself:
How much equity do I have?
How much do I owe on my home?
How much am I paying each month?
How much cash do I want available for emergencies?
Could using some of my home equity improve my monthly cash flow?
Those questions can tell you much more than a single interest-rate announcement.
The Bottom Line
When the Federal Reserve raises interest rates, homeowners don’t have to panic or make a quick decision.
But it can be a good time to take a fresh look at your finances.
For homeowners 62 and older, a reverse mortgage may provide another way to use home equity. Depending on your situation, it may help pay off an existing mortgage, improve monthly cash flow or provide access to funds for future needs.
A reverse mortgage isn’t right for everyone. It also comes with costs and responsibilities. You still need to pay property taxes and homeowners insurance, maintain the home and meet the loan’s other requirements.
The best place to start is with your numbers.
See What Today’s Rates Could Mean for You
Your home equity may be one of your most valuable financial resources.
If you’d like to see what you may qualify for, call us at 855-212-9114. A South River Mortgage loan expert can walk through the numbers with you.
No pressure. No obligation. Just a chance to understand your options.
Frequently Asked Questions
Does a Fed rate increase affect reverse mortgage rates?
It can influence the broader interest-rate environment, but a Federal Reserve rate change does not automatically translate into an equal change in a reverse mortgage rate. Your actual rate depends on the specific reverse mortgage and current market conditions.
Can I get a reverse mortgage if I still have a mortgage?
Possibly. A qualifying HECM borrower can have an existing mortgage, but the existing mortgage generally must be paid off when the reverse mortgage closes. Reverse mortgage proceeds may be used for that purpose.
Does a reverse mortgage eliminate my monthly mortgage payment?
With a HECM, borrowers are not required to make monthly mortgage payments for principal and interest. However, borrowers must continue to meet obligations such as property taxes, homeowners’ insurance and maintaining the home.
How much can I get from a reverse mortgage?
The amount depends on several factors, including your age, the value of your home and the interest rate.
Is a reverse mortgage a good idea when interest rates are high?
There isn’t a one-size-fits-all answer. A higher-rate environment can make it especially important to compare your current mortgage payment, available home equity, loan costs and other financial options before making a decision.
Who can get a HECM reverse mortgage?
A HECM is available to homeowners 62 and older who meet the program’s other requirements.
