“ Aren’t fixed rate reverse mortgages better?”
I get this question, or a variation of it at every appointment I go on.
Most people’s first reaction is to go with a fixed rate reverse mortgage. It’s what we’ve heard thousands of times. “Fixed rate mortgages are the only way to go. I would never get an adjustable.”
When you are contemplating a reverse mortgage though you have to look a little closer. It all depends on your purpose for the loan, how much you need to borrow, what you will be doing with the money from the loan and your intentions for your home.
Remember in the reverse world fixed rate loans are “closed-end loans” and adjustable rate loans are “open-ended”.
Also remember that reverse mortgages require no monthly payments so the interest and mortgage insurance accrue each month to the balance. A negatively amortizing loan in lender talk.
An adjustable rate reverse mortgage allows you to only borrow what you need whereas a fixed will require you to take the entire amount you qualify for.
I like the fixed when a borrower needs most or all of the available funds to payoff an existing mortgage AND they plan to remain in their home for the rest of their lives. The SAVER Fixed and STANDARD Fixed should both be looked at in this circumstance. I even kind of like the adjustable in this situation. A relatively young reverse mortgage borrower could make mortgage payments on the adjustable and establish a growing line of credit they can draw from in the future. Have your financial advisor call me to go over how this works, they may have some even better ideas.
I do like the fixed on a Reverse For Purchase loan. The borrower is usually borrowing the maximum loan possible in order to purchase. The fixed rate reverse works great here as there is no line of credit anyway and the rate is set allowing the borrowers to know to the penny what their loan balance will be over time.
Any loan, reverse included, must be the right “fit” for the homeowner based upon their own individual intentions, needs and finances. Become an educated consumer, ask questions, compare loans and you will know which reverse is best for you, adjustable or fixed.
I’d love to continue this conversation with you so respond in the comments section or email me any questions. Your question could be my next post!
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
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iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.