Reverse Mortgage Rates
Most people have the knowledge of the impact of interest rates on the traditional mortgage loans but lack adequate information or knowledge about the rates of the reverse mortgage. Like other types of mortgage loans, reverse mortgages’ rates are either fixed or variable interest. The rates are significant for several reasons.
The interest rate is crucial to how much a borrower will be qualified to receive. The interest rate and the payout are inversely proportional; in that, the lower the rate, the higher the rate, the lower the payout, and the lower the rate, the higher the payout. The reverse mortgage’s rates, to a large extent, indicate the total sum of money that borrowers will be indebted to the lender in the future. Although the impact of the rates may not create an immediate concern, it will have an effect on the inheritance of the heirs of the borrowers. Therefore, interested applicants should take the time to know the details of reverse mortgages and the rates of interest before going for the loan.
The Reverse Mortgage Rates Determination
There are two types of rates of interest of reverse mortgage are fixed rates and variable rates. However, several factors affect the rates. The payment plan that a borrower chooses is the first determinant of the rates. Borrowers who wish to receive the proceeds of the reverse mortgage as a single lump sum have only fixed rates available to them. The fixed rate has the benefit of the rates remaining unchanged over time irrespective of the circumstances that may arise. Meanwhile, fixed rates limit the payout options available to the borrower.
Variable interest rates can also be applied to the reverse mortgage. Variable rates are based on London Inter-Bank Offered Rate Index (LIBOR). There are also adjustable interest rates which can be adjusted monthly, every six months, or every year. However, reverse mortgage rates have been regulated so that the rates do not exceed a certain amount. Meanwhile, lenders usually add a margin to the rates determined by LIBOR index; consequently, the adjustable rates vary slightly from one lender to another.
Choosing Fixed and Variable Mortgage Rates: Which Is More Beneficial?
Several things should be considered when choosing an interest rate.
Fixed rate reverse mortgages are most suitable for borrowers who are in need of a large sum of money immediately. Borrowers who want to pay off their existing mortgage loan may consider receiving the proceeds of the reverse mortgage in a lump sum at a fixed rate. Meanwhile, this option is not suitable for borrowers that do not need the money for a particular purpose that require a significant amount of money immediately because the interest starts to accumulate quickly when the borrower receives the payment.
Borrowers that wish to receive the proceeds of the reverse mortgage as monthly payments or a line of credit rather than receiving the proceeds as a lump sum will be charged interest on the amount they have received. The amount of interest that will be paid during the term of the loan will is likely to reduce. To have the most beneficial interest rate and payment alternative, borrowers should carefully examine the available options and the benefits and consider the offers of several lenders before making a decision.
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