Three Tips for Getting the Best Interest Rate on Your Reverse Mortgage

1) Reverse Mortgages: The Way You Take the Proceeds Matters

There are several choices for taking the equity from your home using a reverse mortgage. The interest rate you are offered can be different if you take a lump sum distribution versus taking the equity in small monthly payments. How you decide to take the money depends on why the money is needed. If you currently have a mortgage on the house, at least part of the proceeds should be a lump sum to pay off that mortgage. If you do not need a lump sum, you might elect to have a small monthly amount to supplement your income. Or, maybe you are just looking for an open line of credit to access only in an emergency. The reason for the reverse mortgage will often influence which payment type you choose. The payment type you choose may affect the interest rate.

2) Shopping for a Reverse Mortgage Lender

First, using a reverse mortgage calculator is a great way to compare the best interest rates available. Second, a reverse mortgage lender must supply you with a TALC disclosure. TALC stands for Total Annual Loan Costs. The TALC allows you to compare different types of reverse mortgage and their interest rates side by side. After you have used the reverse mortgage calculator, and once you have received several TALC disclosures from reverse mortgage lenders, start to negotiate with the lenders. Reverse mortgage lenders compete with each other for business. Let them know what your best offer looks like and see if they can do better.

3) Comparing Indices And Margins

Most reverse mortgage loans have an adjustable interest rate. Only if you take all of the equity proceeds up front as a lump sum would you be eligible for a fixed interest rate. Because the adjustable rate is the most common, you should spend some time familiarizing yourself with the various indices and how they work. The two most common indices for reverse mortgages are the LIBOR and the US Treasury. There is a trend now to move toward the LIBOR index because loans tied to the LIBOR are easier for investors to sell.

The margin is the percentage amount the reverse mortgage lender will collect above the index. For example: if your reverse mortgage adjusted with the 1 Year LIBOR at 2.160% and the interest was calculated with a 2.50% margin, your fully indexed interest rate would be 4.66%.

When shopping with different reverse mortgage lenders, ask them about the index and the margin. Find the index's value online, add the margin, and compare each lender's fully -indexed rate. Reverse mortgage counseling can help you fully understand TALC disclosures and make an informed financial decision.