Reverse Mortgage Interest Rates
Variable Rate Options: 1 month LIBOR monthly adjusting rate
1 year LIBOR annually adusting rate
Fixed Rate Option
All programs have annual mortgage insurance premium of 1.25%
Reverse Mortgage Interest Rates are important because:
- Lower rate means less interest charges over the life of the loan and more equity to your heirs.
- A lower expected interest rate based on a lower margin, provides more proceeds to the homeowner and a higher principal lending limit.
- The fixed rate option is limited to a cash draw up to 60% of the principal limit or mandatory obligations (mortgage payoffs & fees) plus 10%. Borrower’s can access 100% of the principal limit with mandatory obligations such as purchase funds or high existing mortgage payoffs.
- A variable rate allows a line of credit or monthly tenure or term payments to you.
You can choose a fixed or adjustable rate reverse mortgage. Your needs and desires will determine the best rate option for you. The fixed rate is a very desirable option because you don’t have the risk of higher rates in the future. With a line of credit or monthly payment option you are not charged interest until you access funds and these options are tied to a variable interest rate or HECM Choice fixed rate option.
If you are on a means based public assistance program such as SSI or Medicaid (Medi-Cal in California), you should not take a large cash draw as that may disqualify you from the public programs.
As you can see, many factors are involved in deciding on the right rate option and program for you. Please call Maggie at (800) 489 0986 to discuss the options so you make the best decision.
Variable or Adjustable Rate (ARM) HECM Reverse Mortgages
Variable Rate Option
Variable rate reverse mortgages have interest rates that change or adjust over time. You will hear these programs called adjustable, variable, ARM or moving interest rates. These options remain very popular among senior homeowners who have small existing reverse mortgages to pay off and want a line of credit or monthly payment as a way to access funds in the future.
A very important factor in choosing a rate option is the method you would like to receive the money. The type of interest rate on your reverse mortgage is directly related to the way the funds are received.
You may prefer to leave the money in reserve as a line of credit for a number of reasons.
- Interest is not charged on your reverse mortgage until you draw the money, interest is charged only on the loan balance and not on the line of credit.
- The growth feature in line of credit acts as a nest egg for the future. The line of credit will increase at the same rate of interest that’s charged on your loan balance. There are three factors in determining the interest charged, the margin which is the spread or percentage is the current monthly or annual LIBOR index. Ongoing mortgage insurance premium (mip) is 1.25% Since this is a monthly adjusting interest rate, it can move up or down. The highest the rate can reach (lifetime cap) is 5 percentage points above the start rate and the annually adjusting option limits the rate adjustment to 2% in a twelve month period and the rate remains stable during that period. The line of credit increases at the same accrual rate as the loan balance.
Please note: To receive a line of credit, monthly tenure or term payment, you MUST have the variable interest rate. The fixed rate program requires a lump sum draw at closing.
Fixed Reverse Mortgage Interest Rates
The Fixed HECM interest rates are desirable for the simple reason that the rate is guaranteed not to increase over the life of the reverse mortgage.
With the fixed rate reverse mortgage, you MUST take a lump sum draw but there are restrictions to the amount of cash you can draw up to 60% of the principal limit or 10% above the manditory obligations.
LIBOR stands for “London Inter-Bank Offered Rate.” It is based on rates that contributor banks in London offer each other for inter-bank deposits. From a bank’s perspective, deposits are simply funds that are loaned to them. So in effect, a LIBOR is a rate at which a fellow London bank can borrow money from other banks. Rate calculations are complex as they incorporate variables such as time, maturity and currency rates. There are hundreds of LIBOR rates reported each month in numerous currencies.
Please call (800) 489 0986 to discuss the options and talk to the reverse mortgage counselor so you make the best decision