Reverse mortgages are ideal mortgages for people who are interested in leveraging their home equity in order to access much-needed cash. In the past, reverse mortgages were only offered as adjustable rate loans. This has recently changed as HUD has now altered the rules of reverse mortgages to allow lenders to also offer fixed rate reverse mortgages. When choosing a reverse mortgage, you should consider whether a fixed rate mortgage or an adjustable rate mortgage makes more sense to you.
The main benefit of the fixed rate mortgage is that you're going to always know what the rate of your reverse mortgage loan is going to be. This makes it easy for you to plan into the future in terms of your finances. People who get reverse mortgages are elderly people who are trying to make sure that they have their finances in order as they age. A fixed rate mortgage makes that easy because the terms and rates are set in advance. They aren't going to change. You can plan how you'll be using your reverse mortgage loan for the rest of your life starting from the day that you get it.
The adjustable rate mortgage doesn't allow you to do this type of advance planning to nearly the same degree. Like with any other adjustable rate loan, the adjustable rate reverse mortgage loan is going to depend upon the market. It's going to change with time (although it may not change significantly). You'll have to take these potential financial changes into consideration as you plan for your financial future which can be a bit more difficult than planning with a fixed rate reverse mortgage would be.
On the other hand, the adjustable rate reverse mortgage might end up costing you less in the long run. If the rate is low and stays fairly low over time then it's going to save you money compared to a higher-interest fixed rate loan. HUD has established rules which make it impossible for your adjustable rate reverse mortgage to ever rise over 10% so you don't run too many risks of having to pay a high rate down the line. Of course, if you can lock in low-interest fixed rate reverse mortgage loan right now then that might end up being the option that costs you less money in the long run.
There are pros and cons to these different types of reverse mortgages just like there would be when choosing between a fixed rate and an adjustable rate on any other home loan. The type of rate that is best for you really depends on your personal financial situation, how much planning you want to do for the future and whether you plan to access the reverse mortgage loan as a lump sum payment or to use it as a line of credit. Discuss your options with a reverse mortgage specialist to make the right decision on rates.
