Fixed Rate vs. Monthly Adjustable Reverse Mortgage

Reverse mortgages are a great way to prepare for your retirement years because they provide seniors with either a lump sum or the option to get a monthly cash flow. Like more traditional mortgages, a Home Equity Conversion Mortgage (HECM), also called reverse mortgages, also comes with the option to get a fixed rate or an adjustable reverse mortgage.

Up until recently, only the adjustable rate HECM was available. Now, you can get a reverse mortgage with a fixed rate, and this actually may be the better option for you.

The Differences between the Two Types

The adjustable rate HUD reverse mortgage provides you with several options for getting access to your cash. You will need to make a decision about which method you want, how much cash to get immediately, and how much to leave available for later. The main problem is the interest rate - which can change rather drastically and unexpectedly. It depends entirely on what the economy is doing.

A fixed rate reverse mortgage, on the other hand, enables you to get all of your cash upfront in one lump sum. The interest rate will never change on a fixed rate mortgage, which provides you with a strong hedge against rising interest rates.

The Interest Rate Does Not Change
An adjustable rate reverse mortgage will change its interest rate in relation to whatever is happening with the economy. That could be a good thing - or it really could be a problem. There is a cap of 10% on the amount that the interest can change, but it can do so very quickly. Would you like to have your interest rate raised by 10% within a month - or even within a year?

The fact that your interest rate does not change in a fixed rate mortgage gives you comfort in knowing that it will be unaffected - no matter what the economy does. While its interest rate may be a little higher than an adjustable rate at the start, you never have to be concerned about what will happen tomorrow. Neither will you have to keep a close eye on what the economy is doing, either, because it just will not matter.

Lump Sum Amounts Are Given Immediately

An adjustable rate reverse mortgage allows you to get money up front, and then you can choose other options for the remainder of the money. A fixed rate mortgage gives you the total lump sum amount up front. This can work very well for you if you need to buy a new home so that you can downsize your current financial obligations with a larger home. The cash enables you to pay off your existing mortgage and then buy the new home.

Another option is to take that long vacation that you have waited for so long, after all - it is your money. Your fixed rate reverse mortgage will provide you with the full available amount of your equity, minus any fees that are required for the cost of the mortgage and maintenance of it. There will not be any surprises along the way with changes in interest – or in decreasing amounts of equity.

A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of "62 Senior Moments." If you would like more information, please call (866) 683-3690 or complete our online Reverse Mortgage Information.