A detailed look at Reverse Mortgage Interest Rates and how they factor into how much money you can expect to receive. Obviously, when looking at a traditional mortgage, the lower the rate, the lower the mortgage payment. With a reverse mortgage the lower the rate, the more money you can receive. Choosing the correct reverse mortgage product is a crucial step because there are essentially two options, fixed or variable rate loans.
If you decide to go with a fixed rate reverse mortgage, the only type of payout option is the lump sum, which means you must receive all of the proceeds at once, with no future ability to take out more money. The only fixed rate product is the HECM Saver, which currently comes with an interest rate between 4.5% to 5.06%. The lower the rate the better, correct? Not necessarily! You must consider how much money you need and how long you will be staying in your home.
For example, if your plans are to stay for the rest of your life, then you would want to choose a lower rate because you can receive more cash upfront. But if your plan is to move within a few years, then you may want to choose a higher interest rate because the lender will pay for most if not all of your closing costs. You may receive less cash upfront, but because your breakeven point is significantly less, the lower the cost the better.
The other payout options such as the monthly payments or line of credit, must be taken out as a variable rate loan. Currently, there are two products available for these types of payouts, they are the HECM Standard and the HECM Saver. Once again, the lower the interest rate the more money you can expect to receive, but the closing costs will be higher upfront. For instance, if you want maximum monthly payouts the HECM Standard would be most likely the best option, of course the closing costs are higher. If your goal is to move out within 3-5 years, your best option would most likely be the HECM Saver product because the closing cost will be less or non-existent. Interest rates on the variable rate loans range from 2.5% – 3.25% today and are based on the 1 month LIBOR index. Here is a graph of the LIBOR over the last 10 years:
The major downside to a reverse mortgage with a variable rate is if the interest rate rises then you loan balance grows at a faster rate. Typically the interest rate cap is around 12%, so even if interest rates spiked to 15% you would not pay that much.
The major upside to a variable rate loan is that if you use the line of credit option the credit line will grow as your house appreciates in value.
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Detailed Look at Reverse Mortgage Interest Rates
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Reviewed by Merlyn Rosell
Published :
Rating : 4.5
Published :
Rating : 4.5