What to do? What to do? What to do? You've done your research and you've decided you want to go forward with a Reverse Mortgage but now you have to decide "Do I go with a fixed or adjustable rate Reverse Mortgage?"
Many people are uncomfortable going with adjustable rate loans but when you're looking at reverse mortgages you have several different factors to consider that you don't have to consider with a conventional loan.
With a reverse mortgage fixed rate loan, you are required to withdraw all available funds at the close of escrow. So if your purpose in doing the reverse mortgage is to pay of an existing mortgage or you're planning on a large lump sum withdrawal then a fixed rate may make sense for you. However, if you're looking for a monthly income or a line of credit then you will have to go with the adjustable rate HECM which allows you to receive the money in a various number of ways.
As an example let's say you qualify to receive $185,000 from reverse mortgage but you only need $20,000 right now to pay off some bills and do some home repair . If you choose to do a fixed rate loan you will have to withdraw the entire $185,000 at the close of escrow and interest will begin accruing on the full amount right away. You can use the $20,000 you had planned and put the remaining $165,000 in a savings account but with today's rates, what kind of interest will you make on that money? On the other hand if you choose the adjustable rate, you can draw out the $20,000 and leave the remaining $165,000 in a line of credit to be used when you need it. Interest will only accrue on the portion of the funds you actually use and your loan balance will grow much slower. The unused portion of your credit line also grows by approximately 4% per year increasing the amount of money available for your use.
That's why it's so very important to make sure you are working with a reputable local reverse mortgage loan officer in Fresno County who truly has your best interest in mind. A good loan officer would never talk someone into a fixed rate loan when they really need a monthly income, nor would they suggest an adjustable rate if they borrowers was going to use all the funds to pay off a mortgage.
Other questions can come in to play such as how long are you planning on staying in your home and is leaving an inheritance for your children a priority?
A good loan officer will help you sort through all the details and help you arrive at the reverse mortgage that's perfect for you but you should never rely just on what you're told. Do some research on your own so you know the facts about a reverse mortgage. You will also be required to go through HUD Counseling and you will be able to have all of your questions answered there.
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