Do I advise senior homeowners to get a fixed rate reverse mortgage or an adjustable?
In my many contacts with senior homeowner the initial reaction of most of them is that the fixed rate reverse mortgage is the one they prefer. However, the fixed reverse may not actually be the best option for their situation. Both loans use a formula set by HUD which determinse the amount of funds that may be borrowed. The formula takes into consideration the clients age, the home value and the current expected rate. So one factor in the decision of fixed vs. adjustable is which loan will give you access to the amount of funds you require. If you have a relatively large mortgage on your home, you may decide to go for the loan that can give you enough to pay it off - and today the fixed rate reverse provides the most loan proceeds. That can change though and in the past, the fixed provided less funds than the adjustable, based upon rates. If you need to take a large amount of cash in a lump sum for any other reason you may like the peace of mind that a fixed rate provides. You always know to the penny what your balance is going to be. (Note: there are no prepayment penalties on either fixed or adjustable reverse mortgages)
If you are looking to have funds in reserve for an emergency or just do not "need" to borrow the entire amount available, I would strongly advise that you consider the adjustable. The adjustable reverse is an “open ended” loan and allows you to not borrow the entire amount all at once, instead it can be structured as a “line of credit” allowing you access to funds at any time. Until you withdraw it you haven't borrowed it and until you borrow it the lender cannot charge you interest on it. Thus your balance remains lower, leaving you with more equity,... and more options for the future.
If you need to have monthly payments made to you from the loan, then again, I would advise the adjustable as you can structure it to provide you monthly payments for life (tenure) or for a specific length of time (term).
All in all, both the fixed rate reverse and the adjustable rate reverse can both be good choices; when paired with the needs and circumstances of the individual borrower.
In my many contacts with senior homeowner the initial reaction of most of them is that the fixed rate reverse mortgage is the one they prefer. However, the fixed reverse may not actually be the best option for their situation. Both loans use a formula set by HUD which determinse the amount of funds that may be borrowed. The formula takes into consideration the clients age, the home value and the current expected rate. So one factor in the decision of fixed vs. adjustable is which loan will give you access to the amount of funds you require. If you have a relatively large mortgage on your home, you may decide to go for the loan that can give you enough to pay it off - and today the fixed rate reverse provides the most loan proceeds. That can change though and in the past, the fixed provided less funds than the adjustable, based upon rates. If you need to take a large amount of cash in a lump sum for any other reason you may like the peace of mind that a fixed rate provides. You always know to the penny what your balance is going to be. (Note: there are no prepayment penalties on either fixed or adjustable reverse mortgages)
If you are looking to have funds in reserve for an emergency or just do not "need" to borrow the entire amount available, I would strongly advise that you consider the adjustable. The adjustable reverse is an “open ended” loan and allows you to not borrow the entire amount all at once, instead it can be structured as a “line of credit” allowing you access to funds at any time. Until you withdraw it you haven't borrowed it and until you borrow it the lender cannot charge you interest on it. Thus your balance remains lower, leaving you with more equity,... and more options for the future.
If you need to have monthly payments made to you from the loan, then again, I would advise the adjustable as you can structure it to provide you monthly payments for life (tenure) or for a specific length of time (term).
All in all, both the fixed rate reverse and the adjustable rate reverse can both be good choices; when paired with the needs and circumstances of the individual borrower.
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