Choose your reverse mortgage rate with confidence. This information will educate you on all you need to know to make an informed decision.
Which Reverse Mortgage Rate Is Best?
The most important factor in getting the right reverse mortgage rate is being clear on your objectives. One of the deciding elements is how much money do you need? Another is how long you need the money or whether or not you need it all at once. Having a firm grasp on what you need will narrow your reverse mortgage rate options. This information should help.
Fixed Reverse Mortgage Rate
You may think that a fixed rate will save you interest over the life of the loan compared to an adjustable rate. But unless you plan on taking all of the proceeds in a lump sum disbursement up front, a fixed rate is not an option. If you are looking for a lump sum, maybe to pay off an existing traditional mortgage and end monthly mortgage payments, a fixed rate should be available. Fixed reverse mortgage rates often start out higher than adjustable rates. Depending on how long you need the money, a fixed rate can be more expensive. Ask your reverse mortgage lender for a Total Annual Loan Cost Disclosure (TALC) so that you can compare the fixed rate and the adjustable rate options side by side.
Adjustable Reverse Mortgage Rate
If you are interested in receiving monthly payments either for a specified term or for life, you will likely only have the option of an adjustable reverse mortgage rate. The same is true if you are taking out a line of credit for unexpected expenses. Although the interest rate will adjust, this type of reverse mortgage rate can still be cheaper than a fixed reverse mortgage rate. Fixed rates usually start out much higher. If you choose a stable index and a low margin, adjustable reverse mortgage rates can make good financial sense. Again, ask your reverse mortgage lender for a TALC so you can compare adjustables side by side.
Index and Margin
To calculate the amount of interest owed on an adjustable rate reverse mortgage, the lender uses an index and a margin. The index plus the margin is called the "fully indexed rate." Every month the lender takes the current value of the index, adds the margin, and uses that fully indexed rate to charge interest on the balance due. The margin remains set for the life of the loan. The index changes constantly.
The most popular indices used for reverse mortgages are Constant Maturity Treasury (CMT) and the London Interbank Offered Rate (LIBOR). The Wall Street Journal and other major business publications publish these the major indices daily. The margin is the amount of profit the lender needs to make above the index to pay for operating expenses. Research the index you choose and compare margins between lenders. The TALC disclosure is the best way to compare different reverse mortgage loan scenarios side by side.
Renee Morgan
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