Friday, May 10, 2013

Learning About The Adjustable Rate Reverse Mortgage

We all know that the end of March 2013 meant that end of the traditional fixed rate reverse mortgage program.  There are different reasons why this was done, but the biggest was the FHA is loosing money and this was one of a couple ways to help.  Now without this program seniors are left with only one way to qualify for close to the same amount of money they would have just a few months ago; it is the traditional adjustable rate reverse.

Fixed vs. Adjustable

The reason why the old fixed rate program was so popular was because it was a fixed rate.  Seniors today lived though the 70's and 80's and the crazy high mortgage interest rates and when you say adjustable the only thing most people think is adjusting UP.  While rates going up is not always the case, it is pretty easy to guess that because we are currently at historic lows, up is the only likely place for rates to go long term.

The nice thing about the reverse mortgage is the rates of tomorrow don't matter the same way to you once you have closed on the loan because you have no payment.  Rates could skyrocket (although there are now caps in place to limit how high they can go with your loan) but increasing rates would not affect the money you have coming to you from the reverse mortgage; rising rates just effect the remaining equity you have in your home.  If you are planning on living in your home until you die then an adjustable rate should not matter to you at all.  If you are set on leaving your home with some equity to your family if possible, then you may want to consider the saver program where a fixed rate is still possible.


Besides the adjusting interest rate there are a few differences you should be aware of compared to the fixed rate program.  With the fixed rate you were required to take your proceeds in a lump sum; the adjustable loan gives you options to take it all at once, put the money in a line of credit, turn the money into a monthly payment, or a combination of all 3.

  • The line of credit option is an increasingly popular option for seniors because like any credit line, you only pay interest on the money you borrow.  Another advantage of the line of credit is the line grows the longer you have it.  There is some crazy formula that is used to determine the growth rate, but it is similar to a cost of living increase with social security, the line gets a little bigger each year.  One downside with the line of credit is you still don't have all your money, your not totally in control.  If the economy takes a nosedive the bank can just freeze the line...then what good it it to you?
  • The monthly payment used to be the most popular way reverse mortgage proceeds were taken by borrowers.  This option has declined in popularity as more and more people want to be in control of their money and not have to rely on the bank to send them a little bit every month.
  • The last way and still the most popular way to get your reverse mortgage proceeds is the lump sum. By taking the lump sum you get all your money now and then are in control to use it how and when you want.

So there you have it.  The adjustable rate reverse mortgage is now the only way to qualify for the most money.  There are a few more moving parts to this loan, but it shouldn't be something to be scared of or shy away from.  If you are in the market for a reverse mortgage this option should be considered every bit as much as the fixed rate loan was.

1 comment:

  1. I am a reverse mortgage adviser,I like your explanation about Fixed vs. Adjustable Rate reverse mortgage, what you said was very true.I love working with seniors.