Compare Different Options For A Reverse Mortgage Interest Rate

Reverse Mortgage Loans with a Fixed Interest Rate

If you are used to a traditional mortgage, a fixed interest rate may be all you are really interested in at first. But with reverse mortgages, fixed rates are not usually the least expensive way to go. Fixed interest rates are usually only available if you take all of your loan proceeds upfront in a lump sum distribution. If you are using the reverse mortgage to pay off an existing traditional mortgage, this might work for you. But if what you want is a credit line or monthly payments, you wouldn't want to pay interest on the whole loan amount from the start. That would be much more expensive than paying interest on only what you need. So while fixed rate reverse mortgages are available, look closely at the Total Annual Loan Cost (TALC) disclosure to see if it actually is less expensive.

HECM / HUD Reverse Mortgages: Monthly Adjusting Loans

Adjustable rate mortgages can adjust in various ways. With reverse mortgages, the two primary ways that the interest rate can adjust are either monthly or annually. Many borrowers prefer the monthly adjustable option because it normally allows the borrowers to get the most equity from their home. This is because the loan proceeds that will be available are based on the value of the home, the age of the youngest borrower, and the interest rate. Since monthly adjustable rates start out lower than an annually adjusting rate, and are likely much lower than a fixed interest rate, they allow the borrowers to get the most money from their reverse mortgage loan proceeds.

HECM / HUD Reverse Mortgages: Annually Adjusting Loans

Some people do not like the idea of their interest rate adjusting monthly. If you can get by with the loan proceeds that are available using an annually adjusting interest rate, this option may feel more comfortable.

Reverse Mortgage Indices

If you get a Home Equity Conversion Mortgage or HECM loan, the most common type of reverse mortgage, you get an index that is approved by HUD. Currently, that is the 1-month and 1-year U. S. Constant Maturity Treasury (CMT) rate and the 1-month and 1-year London Interbank Offered Rate (LIBOR). The Wall Street Journal and other reliable business publications are good sources for information about these indices.