Fixed Rate Reverse Mortage - Limits Options
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.
Invariably we get around to interest rates and how that affects the mortgage. The fact is for most seniors the adjustable rate mortgage is the right choice.
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 fixed rate option for the reverse mortgage gives the borrower only one option. That is to pull out money only one time. The ARM, on the contrary, allows for a line of credit giving the borrower the ability to draw out money at any time.
The senior gets a two for one deal with the adjustable. First: the senior chooses when to use the money; Second: Interest accumulates only against money's drawn out, leaving the remainder as a non factor.
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.
A good example is someone looking to pay off a mortgage to eliminate the monthly payment. Most fixed rate customers are in this boat, because there main goal is to free up monthly funds. They are not really interested in having a cushion of money at their disposal.
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.
Invariably we get around to interest rates and how that affects the mortgage. The fact is for most seniors the adjustable rate mortgage is the right choice.
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 fixed rate option for the reverse mortgage gives the borrower only one option. That is to pull out money only one time. The ARM, on the contrary, allows for a line of credit giving the borrower the ability to draw out money at any time.
The senior gets a two for one deal with the adjustable. First: the senior chooses when to use the money; Second: Interest accumulates only against money's drawn out, leaving the remainder as a non factor.
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.
A good example is someone looking to pay off a mortgage to eliminate the monthly payment. Most fixed rate customers are in this boat, because there main goal is to free up monthly funds. They are not really interested in having a cushion of money at their disposal.
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 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 Debt Consolidation Loan at
11:38 PM
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