Is a Fixed Reverse Mortgage Right For You?
By Robert Griffin
There are many common misconceptions regarding the effectiveness of fixed rate Home Equity Conversion Mortgages (HECM) or reverse mortgages. Many mature Americans, over the age of 62, are still unsure if using a fixed rate HECM is a better choice than using an adjustable interest rate reverse mortgage or ARM. Both reverse mortgage programs offer benefits to you, the borrower, but the fixed rate reverse mortgage offers a better product choice which is similar as that of the standard fixed rate forward mortgages.
The most common misconceptions and questions asked by mature Americans searching for the best options for the use of fixed rate reverse mortgage versus adjustable interest rate reverse mortgage are:
Can a reverse mortgage with fixed rates be closed- or open- ended? According to the U.S. Department of Housing and Urban Development (HUD) fixed rate HECMs are currently closed-ended credit but it must be reflected in the Note and Loan Agreement. What this means for you is that you are entitled to receive a lump sum payment at the closing of your fixed rate mortgage agreement. You will be able to plan for your monthly expenses better, take that long needed vacation or do with it as you please.
Does reverse mortgages with fixed rates have higher rates than adjustable rate mortgages? The lender you are selecting for your reverse mortgage should know that the expected average mortgage interest rate used to determine the principal limit must be the same as the HECM note rate and set simultaneously. Lenders are able to offer a comparable rate in comparison with many conventional forward mortgages.
Since the HECM program is not based on your credit score the lender of your choice will be able to better determine which rate is better for you. However the fixed rate HECM will be a stable rate and will not change over the life of your loan, giving you a peace of mind.
As with any loan there are some risks if information is not properly given by the lender. Withdrawing the full amount of equity in your home could allow you to completely pay off your home and still receive a lump sum cash payment at closing. This all depends on age, value, current rates and existing equity in your primary residence.
Being informed can almost eliminate the fear of making a bad decision when it comes to choosing a fixed rate HECM. The fixed HECM will allow you to have the ability to know what your final owed balance will be once your loan matures. The loan only matures when it is no longer your primary residence. You now have more options when it comes to your fixed reverse mortgage and the most important being a peace of mind. Speaking with a loan representative will assist you in understanding the common misconceptions and questions regarding fixed reverse mortgages.
Photo by Will De Freitas
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