Will the New fixed-rate Reverse Mortgage work for you?

I have been doing reverse mortgages since the early nineties and almost from the start I have heard the question "Are they going to come out with a fixed rate reverse mortgage"?. Well the day is finally here, the fixed-rate has arrived and a new question is.

Will it work for you?

There are a few things you should know about the fixed-rate reverse mortgage Let me explain.

With a fixed rate reverse mortgage you have to do something that I've never recommend when a reverse mortgage is being considered and that is to take all the funds out at closing. I normally recommend the credit line because of its growth rate and when the funds are in the credit line they are not affecting the home equity. With the credit line the money is available when needed and safe.

With considerations for the fixed-rate reverse mortgage all of the funds have to be taken out at closing in order to get the lowest fixed-rate.

This now puts a senior in charge of finding a safe place to put the money so there's little or no chance of losing it. You can see at this point that this can be a problem because there's always someone out there wanting to invest your money. The fixed-rate mortgage works best when there's an existing forward mortgage to be paid off that is close to the entitlement derived from the reverse mortgage

Let me give you an example

If the customer is 66 years of age and the home is worth $200,000 with an existing forward mortgage of $90,000 the estimated entitlement would be approximately $100,000 the reverse mortgage would pay off the $90,000 forward mortgage and the senior would only have to contend with investing the $10,000. This could be done with a CD or some other secured instrument. At that point there would be no more payments to be made on the forward mortgage and the interest rate on the reverse mortgage is fixed.

In contrast, if the same 66-year-old were to do a HECM100 reverse mortgage the forward mortgage would be paid off and there would be a surplus or a credit line available of approximately $25,000. If this was left in the credit line the availability would grow each year. So not only is the interest rate lower on the adjustable reverse mortgage at this time the money available is increased also.

With reverse mortgage interest rates at an all-time low and the new LIBOR based reverse mortgages now available, unless there is an existing forward mortgage to be paid off or other large debt that needs to be handled, the fixed-rate in my opinion does not appear to be a good choice.

By Jim Saeger Reverse Mortgage Specialist MyFloridaReverse.com

About Author

I have been helping Seniors with Reverse Mortgages since the earily 90's and I am presently with Financial Freedom the leading Reverse Mortgage company in the United States.