Fixed Rate Reverse Mortage - Limits Options
The senior community is still getting its proverbial feet wet when it comes to the reverse mortgage. As such I spend the vast majority of my time educating them on the basic workings of the mortgage.
My discussions with my senior customers always get around to the interest rate and which way to go based upon their individual situations. Fact - The fixed rate works well for very few seniors.
This always makes me smile a bit because when I spring it on the prospective customer, I know they will have a bit of a conniption until I have a chance to fully explain why. Then they reach acceptance.
The biggest problem with the fixed rate, in the reverse mortgage business, is it does not offer the customer a line of credit option. The borrower is forced to immediately draw out that which the customer qualified to receive, or a smaller amount if the borrower so desires.
The senior gets a two for one deal with the adjustable. First: the senior chooses when to use the money; Second: Interest accumulates only against money's drawn out, leaving the remainder as a non factor.
This being so, the one borrower for whom it makes sense to go with a fixed rate reverse mortgage is the the one in need a sizable upfront sum of money.
A good example is someone looking to pay off a mortgage to eliminate the monthly payment. Most fixed rate customers are in this boat, because there main goal is to free up monthly funds. They are not really interested in having a cushion of money at their disposal.
With this in mind it's all personalities. Many will still grab that ARM but the more risk averse borrower will gravitate to the fixed. Keep in mind the fixed rate today is only slightly higher than the fifteen year average for the adjustable.
My discussions with my senior customers always get around to the interest rate and which way to go based upon their individual situations. Fact - The fixed rate works well for very few seniors.
This always makes me smile a bit because when I spring it on the prospective customer, I know they will have a bit of a conniption until I have a chance to fully explain why. Then they reach acceptance.
The biggest problem with the fixed rate, in the reverse mortgage business, is it does not offer the customer a line of credit option. The borrower is forced to immediately draw out that which the customer qualified to receive, or a smaller amount if the borrower so desires.
The senior gets a two for one deal with the adjustable. First: the senior chooses when to use the money; Second: Interest accumulates only against money's drawn out, leaving the remainder as a non factor.
This being so, the one borrower for whom it makes sense to go with a fixed rate reverse mortgage is the the one in need a sizable upfront sum of money.
A good example is someone looking to pay off a mortgage to eliminate the monthly payment. Most fixed rate customers are in this boat, because there main goal is to free up monthly funds. They are not really interested in having a cushion of money at their disposal.
With this in mind it's all personalities. Many will still grab that ARM but the more risk averse borrower will gravitate to the fixed. Keep in mind the fixed rate today is only slightly higher than the fifteen year average for the adjustable.
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A far more detailed discussion of of the reverse mortgage in and around texas can be found here.. Questions, answers and a reverse mortgage learning paradise of links in and around texas is right here.
posted by Credit Counseling at
11:46 PM
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