Thursday, August 9, 2012

Is a Fixed Rate The Best?

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The 6th myth spoken about in the National Council on Aging’s 8 reverse mortgage myths article talks about a fixed rate vs. an adjustable rate reverse mortgage. Now I bet if you surveyed 1000 seniors about whether a fixed rate or adjustable rate is better, you would have an overwhelming response that fixed is best. This is just my opinion, but how could someone who probably owned a home back in the late 1970's through the late 80's say anything different—especially if you just happened to be one of the lucky ones who purchased a home in October of 1981 and had a wonderful mortgage interest rate of 18.45%. In many seniors minds, sure an adjustable rate may be at 3% now, but in a year or two it will be back in the teens and then they will be stuck...this is not the case now with rate caps, but that is what is thought so why chance it, just get a fixed rate!

This line of thinking makes sense to most people, but depending on your situation, this may not make the most sense with a reverse mortgage. The fixed rate reverse mortgage has lots of benefits. Most cases it gets you the most money, the rate is fixed, and it is by far the most popular, so it usually is faster to underwrite and close on the loan. The main drawback with the fixed rate reverse mortgage is that you are required to take a lump sum of all the money you qualify for; you don't get a choice, you have to take the money. Depending on your situation this may be perfect for you, but if you don't need all that money looking into an adjustable rate reverse mortgage might be the way to go.

With the adjustable rate option, you can choose to take the money as a lump sum, a line of credit, or a monthly payment. This may be the best choice if you do not need much money right now and don't trust yourself with it once you have it. I'm in that situation...if I have cash in my wallet it tends to disappear. I can't ever seem to account for where it goes, it just jumps out of my wallet and walks away. If you are like me with cash, and now you don't have a mortgage payment plus you have a large sum of money burning a hole in your pocket, this could be a recipe for disaster. Being set up on a monthly payment option or even a line of credit where you only pay interest on the money you use could save you pain in the long run.

Reverse Mortgages can be a great loan for many Utah seniors, but contrary to popular belief, the fixed rate option may not be the best for everyone! To see how much you qualify for on both the fixed and adjustable rate, check out our reversemortgage calculator or call 1-800-431-9250 to get prequalified over the phone.

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