Fixed Rate Reverse Mortage - Limits Options
As information slowly diffuses throughout the senior community regarding reverse mortgages you might surmise that, as a reverse mortgage specialist, I spend a tremendous amount of time educating.
Invariably we get around to interest rates and how that affects the mortgage. The fact is for most seniors the adjustable rate mortgage is the right choice.
Older Americans are more conservative. As such they have a hard time with this when I say, "you're going to want the adjustable rate option". To avoid them walking out of my office I explain myself quickly.
The fixed rate option for the reverse mortgage gives the borrower only one option. That is to pull out money only one time. The ARM, on the contrary, allows for a line of credit giving the borrower the ability to draw out money at any time.
By allowing the choice of when to draw out money the adjustable offers the borrower an uncontestible advantage over the fixed in that interest accrues only on drawn out money. The rest is safely not accruing interest against the equity of the home.
So, who is our fixed rate borrower? It is definittely the one has to yank out a bunch of money up front. At the end of the day, its the one who has no need for the line of credit because very little or no money remains.
One of the best examples of a fixed rate candidate is the person who qualifies for just enough to pay off their forward mortgage, thereby relieving the borrower from the burden of that monthly payment. In this scenario the logic to getting an ARM is reduced to a wash against the fixed.
Right now the adjustable is extraordinarily low, but its fifteen year average and the current fixed rate are roughly equal. For the conservative reverse mortgage customer looking for a large upfront sum the safe bet is to go with the fixed rate.
Invariably we get around to interest rates and how that affects the mortgage. The fact is for most seniors the adjustable rate mortgage is the right choice.
Older Americans are more conservative. As such they have a hard time with this when I say, "you're going to want the adjustable rate option". To avoid them walking out of my office I explain myself quickly.
The fixed rate option for the reverse mortgage gives the borrower only one option. That is to pull out money only one time. The ARM, on the contrary, allows for a line of credit giving the borrower the ability to draw out money at any time.
By allowing the choice of when to draw out money the adjustable offers the borrower an uncontestible advantage over the fixed in that interest accrues only on drawn out money. The rest is safely not accruing interest against the equity of the home.
So, who is our fixed rate borrower? It is definittely the one has to yank out a bunch of money up front. At the end of the day, its the one who has no need for the line of credit because very little or no money remains.
One of the best examples of a fixed rate candidate is the person who qualifies for just enough to pay off their forward mortgage, thereby relieving the borrower from the burden of that monthly payment. In this scenario the logic to getting an ARM is reduced to a wash against the fixed.
Right now the adjustable is extraordinarily low, but its fifteen year average and the current fixed rate are roughly equal. For the conservative reverse mortgage customer looking for a large upfront sum the safe bet is to go with the fixed rate.
About the Author:
A more comprehensive analyisis of fixed versus ARMS is at the the Texas guide to rates for the reverse mortgage. Q&A plus excellent Texas data and links to important authority sites are at reverse mortgage education for deep thinkers.
posted by Credit Counseling at
11:01 PM
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