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.
I've spent enough time around the old block to know that If I'm going to say something to a senior like, "you need an adjustable rate mortgage" I better explain myself in no uncertain terms.... And post haste.
Many seniors have built up opinions which may be hard to shake. When one makes a grand statement, that might normally be seen as negative, one better quickly put some logic behind it.
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.
Now I'm not exactly the kind of person willing to accept being squelched. I have a voice, my words make sense, and I was going to tell him where the bear makes in the buckwheat. Wrong! He shut me up again.
My would be customer refused to hear what I had to say, as if I was introducing a vampire into his home. Since you can't shut me up, perhaps you can read on and get a feel why the ARM is typically the better choice.
Quite simply, the fixed rate does not have a line of credit option and the ARM does.
A borrower will qualify to get a certain amount of money based upon multiple criteria. Most don't need all of it at the time they close on the reverse mortgage. That makes the ARM appealing.
The adjustable rate, unlike the fixed, gives the borrower to pull out money, from the line of credit, as needed and when needed.
This benefits the borrower's equity. Unused money in the line of credit has no negative affects on the borrower's equity. It's not accruing interesting eating away at the precious equity.
The fixed rate mortgage, on the other hand, forces the borrower to draw out money one time. Naturally, it will be a sizable number. Why do it otherwise.
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.
The problem is his interest rate on the fixed rate would eat into his equity faster than the money in a bank or some other investment would grow (at least the investment I see today). The ARM in this case, ironically, is the better more conservative choice.
I've spent enough time around the old block to know that If I'm going to say something to a senior like, "you need an adjustable rate mortgage" I better explain myself in no uncertain terms.... And post haste.
Many seniors have built up opinions which may be hard to shake. When one makes a grand statement, that might normally be seen as negative, one better quickly put some logic behind it.
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.
Now I'm not exactly the kind of person willing to accept being squelched. I have a voice, my words make sense, and I was going to tell him where the bear makes in the buckwheat. Wrong! He shut me up again.
My would be customer refused to hear what I had to say, as if I was introducing a vampire into his home. Since you can't shut me up, perhaps you can read on and get a feel why the ARM is typically the better choice.
Quite simply, the fixed rate does not have a line of credit option and the ARM does.
A borrower will qualify to get a certain amount of money based upon multiple criteria. Most don't need all of it at the time they close on the reverse mortgage. That makes the ARM appealing.
The adjustable rate, unlike the fixed, gives the borrower to pull out money, from the line of credit, as needed and when needed.
This benefits the borrower's equity. Unused money in the line of credit has no negative affects on the borrower's equity. It's not accruing interesting eating away at the precious equity.
The fixed rate mortgage, on the other hand, forces the borrower to draw out money one time. Naturally, it will be a sizable number. Why do it otherwise.
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.
The problem is his interest rate on the fixed rate would eat into his equity faster than the money in a bank or some other investment would grow (at least the investment I see today). The ARM in this case, ironically, is the better more conservative choice.
About the Author:
To get California Reverse Mortgage myths, pitfalls and mistakes click me. An excellent question and answer location about the California reverse mortgage is here.
posted by Debt Consolidation Loan at
2:44 PM
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