Questions To Ask To Help Select the Best Reverse Mortgage Option For You.
To help determine the best option for you, ask yourself the following questions:
Is a large part of the available funds being used to pay off a mortgage or debt?
Will you be living in your home beyond 5-7 years?
Is a fixed rate more appealing to you over a variable or adjustable rate? Will you sleep better at night knowing your interest rate is fixed?
If the answer is yes to some or all of these questions, you may be inclined to prefer the fixed rate option which requires a lump sum draw of cash at the closing of the reverse mortgage. If you are satisfied with a reduced amount, you may opt for the ‘saver’ option to keep up front costs low. Many of the fixed rate options carry no loan origination fee also keeping costs down.
Or, are you looking for a way to afford to stay in your home, need to supplement your income and want to access money over time?
Do you have a small mortgage and debt, or no mortgage at all?
A line of credit or monthly payment tenure option may be best for you. If you can settle for a lower line of credit, the saver plan will definitely save you in upfront costs (that accumulate interest and are paid when you leave your home permanently). And if you want a monthly payment, be sure to request printouts for the variable rate saver option. The payment to you is typically not a lot less than the standard option.
Only the variable rate option will provide for a line of credit or monthly payment to you.
The factors involved in your decision to get a fixed or variable rate are different for reverse mortgages than they are for conventional mortgages. Since you don’t have to make payments, a variable rate doesn’t carry the risk for not being able to afford a payment if rates go up dramatically. It will have an impact in the amount that will be paid back in the end and may affect the remaining equity at that time. But if you don’t need the lump sum, taking it all at once will accumulate interest at a faster rate from day one. I’m not trying to convince anyone to choose one rate option over the other, I am only pointing out differences between the options and trying to help you explore the best option for you.
Sometimes I witness people influenced by family members or professionals who recommend the fixed rate without understanding these details between the two options. I advocate education and exploration because this is the second most important decision to make regarding your reverse mortgage. Getting opinions of others is important, but more important is to read and learn and put together the pieces of the puzzle yourself. The first important decision, of course, is deciding to get a reverse mortgage in the first place.