Reverse Mortgage - Why the Fixed Rate is Used Sparingly
As a specialist in reverse mortgages you might imagine I spend a great deal of time explaining the basic workings of the reverse mortgage to potential clients. As a whole the general public is still in the dark.
Conversation eventually makes its way to the mortgage options for them and more particularly the interest rate. The truth is that the ARM makes sense for most seniors.
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 biggest problem with the fixed rate, in the reverse mortgage business, is it does not offer the customer a line of credit option. The borrower is forced to immediately draw out that which the customer qualified to receive, or a smaller amount if the borrower so desires.
The adjustable really kills two birds with one stone. It allows the borrower to use money only as needed, and it safeguards the borrowers long term position by not accumulating interest against the home's equity.
This being the case there really is only one borrower that fits the profile for the fixed rate. It is the borrower who absolutely needs to take out a large lump sum immediately.
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.
Conversation eventually makes its way to the mortgage options for them and more particularly the interest rate. The truth is that the ARM makes sense for most seniors.
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 biggest problem with the fixed rate, in the reverse mortgage business, is it does not offer the customer a line of credit option. The borrower is forced to immediately draw out that which the customer qualified to receive, or a smaller amount if the borrower so desires.
The adjustable really kills two birds with one stone. It allows the borrower to use money only as needed, and it safeguards the borrowers long term position by not accumulating interest against the home's equity.
This being the case there really is only one borrower that fits the profile for the fixed rate. It is the borrower who absolutely needs to take out a large lump sum immediately.
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 far more detailed discussion of ARMs versus static rate mortgages can be found at the Texas guide to the reverse mortgage. Questions, answers and great U.S. and Texas links are at reverse mortgage edu.
posted by Debt Consolidation Loan at
11:47 PM
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