Reverse mortgages are becoming more and more popular as seniors are looking for ways to finance their retirement as well as pay for medical and other expenses. One of the key factors affecting a reverse mortgage are reverse mortgage interest rates. Up until recently, these types of mortgages were all based on adjustable interest rates. However, fixed interest rates for a reverse mortgage loan are now available.
What Is A Reverse Mortgage?
You may be asking yourself, “How does a reverse mortgage work anyhow?” Well, reverse mortgages are loans for seniors provided by reverse mortgage lenders to homeowners who are at least 62 years old. In order to receive a reverse morgage certain criteria that is set forth by the Department of Housing and Urban Development (HUD) must be met. The amount that a homeowner can receive for a reverse mortgage is determined using a reverse mortgage calculator based on the homeowners age, value of the home, interest rate and other factors. A mortgage lender must be approved by the HUD and follow their guidelines, although they are able to set their own fees and interest rates as long as they meet the HUD criteria. There are tons of reverse mortgage jobs out there on the market, since the invention of this type of mortgage.
How Does A Reverse Mortgage Work?
The homeowner can tap into the equity that has accumulated in their home without having to sell or move out of the house. Unlike a home equity loan, the homeowner does not have a monthly loan amount to pay back each month. Instead the reverse mortgage doesn’t have to be repaid until the owner moves, sell the house or dies. This provides senior citizens with cash that they need for their living expense as well as paying for medical bills and other expenses without having to sell or move from their home. These mortgage proceeds can be in the form of a lump sum, as a line of credit, or received in monthly installments.
The main advantage to a reverse mortgage is that is allows seniors to tap into their homes’ equity without having to move or have any monthly loan payment.
One of the biggest reverse mortgage disadvantages is that the costs associated with a reverse mortgage can be quite high. Along with the closing costs, there are also origination and loan servicing fees, interest over the life of the reverse loan, and an insurance premium which is equal to 2.5% of the home’s value.
As discussed earlier, reverse mortgage interest rates from a mortgage provider can be either adjustable or fixed. The rate of interest will partially determine how much a borrower is eligible for, so rates will need to be compared at the time of applying for reverse mortgages. The other thing that interest rate impacts is how much will need to be paid back on the reverse mortgage. A fixed interest rate has more certainty, whereas an adjustable interest rate could increase or decrease the amount of equity left in the home over time. One disadvantage to a fixed interest rate on a reverse mortgage is that you must receive the proceeds as a lump sump, whereas with an adjustable rate your reverse mortgage can be in the form of a line of credit or monthly installments as well as a lump sum.