Reverse Mortgage Adjustable Rate Crushes the Fixed Rate
A senior gentleman gave me a call yesterday. For 15 minutes I assessed his situation and told him definitively he should move forward only with 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.
I knew he was being somewhat ignorant and the adjustable really was his best option. I tried again and he cut me off again, "FIXED RATE". He was a man of few words. I felt like a little kid being shushed by his father.
Well, he was set in his ways and never did open his mind to logic, but maybe you will. The adjustable rate, as it pertains to reverse mortgages, is typically the way to go.
The reason is the adjustable rate mortgage is available as a line of credit. The fixed does not have this option.
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.
When a borrower goes with the fixed rate he takes out a sum of money, either the entire amount or a portion thereof. And "Ba Dee, Ba Dee, Ba Dee, Thats all folks!"
If Mr. Fixed Rate above owned the home free and clear and was getting the reverse mortgage to supplement income, it would be silly to get a fixed rate mortgage. To do so means the borrower would have to pull out a large sum and plop it into a bank or CD awaiting its use.
It does not compute. The rate charged for money pulled out would be greater than the return from the bank or CD. The best option is to go with the ARM and leave it the line of credit. On top of that the 15 year average interest rate on the ARM is lower than the current fixed rate.
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.
I knew he was being somewhat ignorant and the adjustable really was his best option. I tried again and he cut me off again, "FIXED RATE". He was a man of few words. I felt like a little kid being shushed by his father.
Well, he was set in his ways and never did open his mind to logic, but maybe you will. The adjustable rate, as it pertains to reverse mortgages, is typically the way to go.
The reason is the adjustable rate mortgage is available as a line of credit. The fixed does not have this option.
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.
When a borrower goes with the fixed rate he takes out a sum of money, either the entire amount or a portion thereof. And "Ba Dee, Ba Dee, Ba Dee, Thats all folks!"
If Mr. Fixed Rate above owned the home free and clear and was getting the reverse mortgage to supplement income, it would be silly to get a fixed rate mortgage. To do so means the borrower would have to pull out a large sum and plop it into a bank or CD awaiting its use.
It does not compute. The rate charged for money pulled out would be greater than the return from the bank or CD. The best option is to go with the ARM and leave it the line of credit. On top of that the 15 year average interest rate on the ARM is lower than the current fixed rate.
About the Author:
To get California Reverse Mortgage myths, pitfalls and mistakes make it to this site. An excellent question and answer location about the California reverse mortgage is here.
posted by Debt Consolidation Loan at
3:10 PM
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