Why Fixed Rate Has Limited Use for Reverse Mortgage Customers
As information slowly diffuses throughout the senior community regarding reverse mortgages you might surmise that, as a reverse mortgage specialist, I spend a tremendous amount of time educating.
My discussions with my senior customers always get around to the interest rate and which way to go based upon their individual situations. Fact - The fixed rate works well for very few seniors.
Older Americans are more conservative. As such they have a hard time with this when I say, "you're going to want the adjustable rate option". To avoid them walking out of my office I explain myself quickly.
The reality is the fixed rate option is does not offer the flexibility of the ARM. Only the adjustable rate offers the borrower a line of credit option. The fixed rate, rather, forces the senior to take out money one time and one time only.
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.
Perhaps the best candidate for the fixed option is the senior in need of paying off a large mortgage. Many times the borrower qualifies for very close to that which it takes to pay off the mortgage. Very little is left in the line of credit. The senior accomplishes a financial task and takes the conservative bet with the fixed rate.
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.
My discussions with my senior customers always get around to the interest rate and which way to go based upon their individual situations. Fact - The fixed rate works well for very few seniors.
Older Americans are more conservative. As such they have a hard time with this when I say, "you're going to want the adjustable rate option". To avoid them walking out of my office I explain myself quickly.
The reality is the fixed rate option is does not offer the flexibility of the ARM. Only the adjustable rate offers the borrower a line of credit option. The fixed rate, rather, forces the senior to take out money one time and one time only.
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.
Perhaps the best candidate for the fixed option is the senior in need of paying off a large mortgage. Many times the borrower qualifies for very close to that which it takes to pay off the mortgage. Very little is left in the line of credit. The senior accomplishes a financial task and takes the conservative bet with the fixed rate.
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 more comprehensive analyisis of fixed versus ARMS is at the the Texas guide to rates for the reverse mortgage. Questions, answers and great U.S. and Texas links are at reverse mortgage edu.
posted by Credit Counseling at
11:05 PM
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