Reverse Mortgage Rates

Reverse Mortgage Rates – Making the Right Rate Choice

More and more retired individuals are now opting for a reverse mortgage. One of the reasons for this is the decline in reverse mortgage rates. Indeed, the loans which allow you to utilize your home equity without having to repay the debt monthly are now more affordable than ever before. Still, this does not mean that you do not have to look into the rates as a borrower. Quite the opposite, you need to have full understanding of them.

Understanding Reverse Mortgage Rates

A reverse mortgage works as a line of credit. You get fixed cash advances monthly or take out as much as you need every month. In this respect, they work in a way which is similar to credit cards and have little to do with traditional home equity loans. The same is true for the way in which the interest rate is applied.

The interest rate is charged on the outstanding balance and added to the amount of money that you owe on a monthly basis. Over time, your debt will increase. As more of the funds available via the loan are transferred to you, your debt becomes bigger. Eventually, you may use up the entire equity that you own in your house.

Reverse Mortgage Rate Options

Most reverse mortgage rates are adjustable. Just like the adjustable rates on other loans, they are linked to an index, which reflects the cost that the lender incurs when they borrow funds on the free market. Generally, adjustable rates bring greater risk to the borrower, but they make the loan more affordable.

Usually, there are limits set to the adjustments made to the mortgage rates. These are called caps. Their purpose is to lower the financial risk for the borrower. In most cases, there are caps on the frequency of interest adjustment, on the percentage by which it can be adjusted at any given period and on the total change in the interest over the life of the reverse mortgage.

There are also reverse mortgages with fixed rates. The interest is fixed throughout the term of the loan and the borrower is required to tap in the whole equity upfront instead of using a line of credit. This makes the total size of the debt predictable. As a result, the loan is easier to manage as far as home equity is concerned. At the same time, you can expect a fixed rate product to be more expensive than one with a variable rate.

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Current Reverse Mortgage Rates

Just like all other financial products, reverse mortgages are evolving. That is why it is essential for every potential borrower to look into the current interest rates for mortgage loans of this type. At present, the minimum expected interest rate is 5 per cent. Previously, it was 5.5 per cent. The lower rate allows borrowers to take out more money for less.

The lower minimum expected interest rate has made fixed rate loans of this type more attractive. However, with them, you will have to tap in the whole equity in the beginning and this will push the total debt amount considerably. With adjustable mortgage rate reverse, you get to have greater control over the amount of money that you take out over time. Hence, you can keep your debt amount under control and work to make the loan cheaper.

Compare Mortgage Rates

There are three types of reverse mortgages for you to choose from. The different lenders customize each type of loan which they offer. This results in a great variety of products available in the market. Hence, it makes great sense for you to compare as many products and their respective rates as possible.

The comparison of these loans is not a simple task given that they are more complex than traditional home equity loans. You should look into the interest rates in great detail, but this is not the only comparison feature which is important. The origination fees form a considerable chunk of the loan cost so they have to be inspected and compared carefully. The same is true to the mortgage insurance premium which is typically paid upfront.

You now know how reverse mortgage rates work and what options you have available. This will help you take the right decision. Still, given the complexity and importance of these mortgages, it is recommended that you consult a financial counselor before making a final choice.

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