Reverse Loan; Fixed or Adjustable?
Reverse loans offer many choices to senior borrowers, but it can be confusing to decide which one to use because they are different from traditional mortgages, no mortgage payments are required and they are easier to qualify for on a fixed income.
And they also do not have a loan term. Reverse loans are still a mortgage, but unlike what we are all accustomed to. They are different, but similar in that both are liens against the subject property.
In the past when applying for a mortgage to buy a home or refinance, the most popular one was the Fixed rate, because you always knew what your mortgage payment would be, unlike an Adjustable Rate Loan where it can change and possibly increase over time.
And everyone always shops for the lowest interest rate, but that meant you had to pay more Points to get a low interest rate, but if you chose a higher rate the Points would decrease, or possibly be a “Zero” Point loan.
However, with a reverse loan, it is entirely different. There are no Points, but an Origination fee and sometimes, there isn’t any fee at all.
The other difference is how the selected interest rate determines how much money you will receive from a reverse loan. Sometimes the lower interest rates provide less money, and cost more, but if the loan is being used to pay off an existing mortgage and freeing up more cash flow, then that would be a consideration.
And then there is the question whether or not to chose a Fixed interest rate or the HECM Line-of-Credit. is the borrower paying off a large mortgage? Then the Fixed rate might be the best choice.
But if there is a small mortgage or none at all, then the HECM Line-of-Credit would be the preferable choice, as it will give the borrower more flexibility with their funds, plus it has a “growth” feature that will provide additional funds in the future.
Anyone reading this is most likely thinking, it’s confusing. And it is. And that is exactly why it is important to meet with a Reverse Loan Consultant who can provide you with a personalized proposal and eliminate some of the confusion.
In the midst of Covid-19 and the uncertainty of the future, more seniors are now actively investigating the benefits of a reverse mortgage and many have applied for their own loan to preserve their savings and have a financial “safety net”.
And maybe you should, too.