When comparing the Reverse Mortgage fixed rate and variable rate loans, there are a lot of factors to consider what option will be the best for you financially. The fixed rate option has been very popular over the past few years, simply because the interest rate is fixed, but there are many disadvantages of taking an interest rate that is fixed with a reverse mortgage. The variable interest rate reverse mortgage loan has a disadvantage, which you might have guessed, it is an adjustable rate product and the loan’s rate can be unpredictable. But there are many advantages to the variable rate reverse mortgage that you may want to consider when looking at the best option that fits your need.The fixed rate loan has one distinct advantage, the interest rate is fixed over the life of the loan, but that is also the disadvantage as well. If you were to choose the fixed rate loan option, you must take a lump sum payout, there are no other options with the fixed interest rate loan. The only reason you would want to use this reverse mortgage product is if you are going to use all the cash at once or paying off the mortgage currently on your home. For example, if you take out a lump sum, but don’t use all the cash at once, then you are just paying interest on money that is sitting in a bank account. Unless you use all of the cash upfront, then you may want to consider the variable rate loan because it is more flexible and offers many options. The fixed rate reverse mortgage only comes with the HECM Saver product, learn more about the HECM Saver product by clicking here. In April of 2013, HUD stopped allowing the HECM Standard with the lump sum option.
The variable rate loan has one distinct disadvantage, the interest rate is variable over the life of the loan, but that is also the advantage as well. With the variable rate loan you have the choice of taking out a lump sum, opening a line of credit or receiving a fixed monthly payout for the rest of your life or any combination of these. With the fixed rate option the interest starts to accrue from the time you take out the loan, since it only comes as a lump sum option. On a variable rate loan, if you choose the fixed monthly payout or line of credit, the interest only accrues on the money that has been paid out to you. In the long run the interest accrues much more slowly. The variable rate reverse mortgage comes as the HECM Standard or HECM Saver, learn more about the HECM Standard product by clicking here.
For example, if you are 70 years old and the value of your home is $200,000 and you take out a fixed rate lump sum loan of $109,000, which is the max payout, your balance would be approximately $181,000 in 10 years. But if you were to take the fixed monthly payout option, your balance would be $110,000 in 10 years, roughly $71,000 less interest over the same period of time.
When choosing the correct reverse mortgage product for you, these are just some of the considerations you will need to take into account.
Comparing the Reverse Mortgage Fixed Rate and Variable Rate Loans
![Comparing the Reverse Mortgage Fixed Rate and Variable Rate Loans]()
Reviewed by Merlyn Rosell
Published :
Rating : 4.5
Published :
Rating : 4.5