Reverse Mortgage Fixed Rate Lacking Punch
A prospective client called me a few days ago. We discussed his situation for fifteen minutes and I told him flat out the best option for him was an adjustable rate mortgage.
Well, this isn't my first rodeo and know how most seniors feel about adjustable rates. So, my goal is, after I tell them they should get an ARM to explain myself as fast as humanly possible.
The adjustable already isn't in good standing with the general public. With a conservative group like seniors it's even worse. I better start making sense and quick-like.
I lost the race. This guy was like Speedy Gonzalez. He immediately held up the proverbial stop sign and made it clear, in no uncertain terms, he wanted the fixed rate.
I knew he was being somewhat ignorant and the adjustable really was his best option. I tried again and he cut me off again, "FIXED RATE". He was a man of few words. I felt like a little kid being shushed by his father.
I never got my point across to him, but since you can't shush me maybe I can get it across to you. The ARM is not always the best choice, but for most people's situation it is.
Quite simply, the fixed rate does not have a line of credit option and the ARM does.
Borrowers qualify to receive a certain amount of money. Most do not need to use all of it. Some hardly need any up front, which makes the line of credit an important option.
The line of credit option gives the senior the right to draw out cash, use as needed, and leave the rest for later. At any time they can draw out more money.
What is most notable about this is the interest accrues against the borrower's equity only on money drawn out and used. While it's sitting in the line of credit it's not working against the borrower's equity.
Unlike the ARM, the fixed rate option allows only one draw of funds. So, the borrower better make it count. And interest starts accruing immediately on the entire sum.
Let's say my guy above, who wouldn't listen to me, owned his home free and clear (which he did). He also wanted to supplement his income. His is the most obvious example of someone who should go with an ARM. Going with a fixed would force the borrower to draw out a big sum and put it into some other investment while waiting to use it.
It does not compute. The rate charged for money pulled out would be greater than the return from the bank or CD. The best option is to go with the ARM and leave it the line of credit. On top of that the 15 year average interest rate on the ARM is lower than the current fixed rate.
Well, this isn't my first rodeo and know how most seniors feel about adjustable rates. So, my goal is, after I tell them they should get an ARM to explain myself as fast as humanly possible.
The adjustable already isn't in good standing with the general public. With a conservative group like seniors it's even worse. I better start making sense and quick-like.
I lost the race. This guy was like Speedy Gonzalez. He immediately held up the proverbial stop sign and made it clear, in no uncertain terms, he wanted the fixed rate.
I knew he was being somewhat ignorant and the adjustable really was his best option. I tried again and he cut me off again, "FIXED RATE". He was a man of few words. I felt like a little kid being shushed by his father.
I never got my point across to him, but since you can't shush me maybe I can get it across to you. The ARM is not always the best choice, but for most people's situation it is.
Quite simply, the fixed rate does not have a line of credit option and the ARM does.
Borrowers qualify to receive a certain amount of money. Most do not need to use all of it. Some hardly need any up front, which makes the line of credit an important option.
The line of credit option gives the senior the right to draw out cash, use as needed, and leave the rest for later. At any time they can draw out more money.
What is most notable about this is the interest accrues against the borrower's equity only on money drawn out and used. While it's sitting in the line of credit it's not working against the borrower's equity.
Unlike the ARM, the fixed rate option allows only one draw of funds. So, the borrower better make it count. And interest starts accruing immediately on the entire sum.
Let's say my guy above, who wouldn't listen to me, owned his home free and clear (which he did). He also wanted to supplement his income. His is the most obvious example of someone who should go with an ARM. Going with a fixed would force the borrower to draw out a big sum and put it into some other investment while waiting to use it.
It does not compute. The rate charged for money pulled out would be greater than the return from the bank or CD. The best option is to go with the ARM and leave it the line of credit. On top of that the 15 year average interest rate on the ARM is lower than the current fixed rate.
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posted by Credit Counseling at
3:06 PM
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