| Many senior borrowers who start looking into reverse | | | | ceiling, or cap on the rate of 10% above the initial rate |
| mortgages are not aware of it, but there is a fixed | | | | so the interest that accrues on the adjustable rate |
| rate Home Equity Conversion Mortgage (HECM) | | | | reverse mortgages could go up dramatically if the |
| available. The HECM or Heck-um as you may hear it | | | | rates rise in the future. |
| called, is the government insured reverse mortgage | | | | The other consideration with a fixed rate reverse |
| program offered by lenders and insured by the | | | | mortgage loan is payment options. On the adjustable |
| Federal Housing Administration. Many senior borrowers | | | | reverses, you can get a lump sum payment (that is all |
| prefer the security of the government insured reverse | | | | your money up front); a line of credit to use when you |
| mortgages but up until very recently, the only reverse | | | | want that grows on the portion that you don't use; a |
| mortgages available were adjustable rate mortgages. | | | | monthly payment for a set period of time or for life; or |
| The adjustable rate mortgages are tied to different | | | | a combination of any of these terms (in other words, |
| indices. It used to be that senior borrowers basically | | | | you could take cash payment now AND keep some |
| had the choice between a monthly or annual | | | | back for a line of credit for when you need it AND get |
| adjustable rate mortgage. Borrowers still have the | | | | a monthly payment). However, the only option available |
| choice of those adjustable rate mortgages (and now | | | | on the fixed rate is the one time distribution at the initial |
| with different indices as well with the recent | | | | funding. If you are paying off an existing mortgage and |
| introduction of the London Interbank Offered Rate or | | | | need it all up front, this would not be a problem and the |
| LIBOR rates), but now borrowers can also opt for | | | | fixed rate is an excellent option. However, if you didn't |
| fixed rate mortgages as well! However, due to the | | | | need all the money and did not want to take all the |
| closed end financing regulations associated with fixed | | | | money in the very beginning, then the fixed rate may |
| rates, there are some limitations on fixed rate reverse | | | | not be for you. |
| mortgages that are not present on adjustable loans. | | | | So as is the case with reverse mortgages in general, |
| Therefore fixed rate HECM loans can't offer all the | | | | education and knowing what your needs are and what |
| features that their adjustable counterparts can. That | | | | will fill those needs is the key to deciding what's best |
| does not make them worse, you just need to know | | | | for you. If you're like me, I always like the sound of a |
| the differences and choose the one that is right for | | | | fixed rate better but if the fixed rate option doesn't |
| you. | | | | give you enough money to meet your needs and the |
| The starting rates on the adjustable rates are a little bit | | | | adjustable rate mortgage does, then the adjustable |
| lower and since that is one of the variables which | | | | rate might be better for you. Also, if you don't want all |
| determine how much money you will receive, you will | | | | the money up front, then you need to consider the |
| typically get a little less money up front with a fixed | | | | adjustable rate mortgage. But remember, if you do |
| rate. However, since the rate is fixed, it will never go | | | | want to take all your funds up front, the numbers work |
| up even if the interest rates rise in the future. This | | | | for you, and you like the security of a fixed rate |
| means your equity will not erode as fast. If the rates | | | | mortgage, then the new fixed rate HECM reverse |
| go down in the future, the fixed rate will not change | | | | mortgage might be perfect for you! |
| with those changes either, but the adjustables have a | | | | |