Why Fixed Rate Has Limited Use for Reverse Mortgage Customers
As a specialist in reverse mortgages you might imagine I spend a great deal of time explaining the basic workings of the reverse mortgage to potential clients. As a whole the general public is still in the dark.
Conversation eventually makes its way to the mortgage options for them and more particularly the interest rate. The truth is that the ARM makes sense for most seniors.
When I relate this to the customer they are temporarily in a state of denial until i have a chance to explain the inner workings of both mortgages. Once they reach understanding the guard comes down.
The biggest problem with the fixed rate, in the reverse mortgage business, is it does not offer the customer a line of credit option. The borrower is forced to immediately draw out that which the customer qualified to receive, or a smaller amount if the borrower so desires.
The adjustable really kills two birds with one stone. It allows the borrower to use money only as needed, and it safeguards the borrowers long term position by not accumulating interest against the home's equity.
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.
With this in mind it's all personalities. Many will still grab that ARM but the more risk averse borrower will gravitate to the fixed. Keep in mind the fixed rate today is only slightly higher than the fifteen year average for the adjustable.
Conversation eventually makes its way to the mortgage options for them and more particularly the interest rate. The truth is that the ARM makes sense for most seniors.
When I relate this to the customer they are temporarily in a state of denial until i have a chance to explain the inner workings of both mortgages. Once they reach understanding the guard comes down.
The biggest problem with the fixed rate, in the reverse mortgage business, is it does not offer the customer a line of credit option. The borrower is forced to immediately draw out that which the customer qualified to receive, or a smaller amount if the borrower so desires.
The adjustable really kills two birds with one stone. It allows the borrower to use money only as needed, and it safeguards the borrowers long term position by not accumulating interest against the home's equity.
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.
With this in mind it's all personalities. Many will still grab that ARM but the more risk averse borrower will gravitate to the fixed. Keep in mind the fixed rate today is only slightly higher than the fifteen year average for the adjustable.
About the Author:
A far more detailed discussion of ARMs versus static rate mortgages can be found at the the reverse mortgage guide of Texas. Q&A plus great U.S. and Texas links are at reverse mortgage edu.
posted by Debt Consolidation Loan at
11:50 PM
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