The senior community is still getting its proverbial feet wet when it comes to the reverse mortgage. As such I spend the vast majority of my time educating them on the basic workings of the mortgage.
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.
When I relate this to the customer they are temporarily in a state of denial until i have a chance to explain the inner workings of both mortgages. Once they reach understanding the guard comes down.
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.
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.
This being so, the one borrower for whom it makes sense to go with a fixed rate reverse mortgage is the the one in need a sizable upfront sum of money.
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.
When I relate this to the customer they are temporarily in a state of denial until i have a chance to explain the inner workings of both mortgages. Once they reach understanding the guard comes down.
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.
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.
This being so, the one borrower for whom it makes sense to go with a fixed rate reverse mortgage is the the one in need a sizable upfront sum of money.
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 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.
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