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Tuesday, December 23, 2008
As information slowly diffuses throughout the senior community regarding reverse mortgages you might surmise that, as a reverse mortgage specialist, I spend a tremendous amount of time educating.
Invariably we get around to interest rates and how that affects the mortgage. The fact is for most seniors the adjustable rate mortgage is the right choice.
When I relate this to the customer they are temporarily in a state of denial until i have a chance to explain the inner workings of both mortgages. Once they reach understanding the guard comes down.
The biggest problem with the fixed rate, in the reverse mortgage business, is it does not offer the customer a line of credit option. The borrower is forced to immediately draw out that which the customer qualified to receive, or a smaller amount if the borrower so desires.
The senior gets a two for one deal with the adjustable. First: the senior chooses when to use the money; Second: Interest accumulates only against money's drawn out, leaving the remainder as a non factor.
This being the case there really is only one borrower that fits the profile for the fixed rate. It is the borrower who absolutely needs to take out a large lump sum immediately.
One of the best examples of a fixed rate candidate is the person who qualifies for just enough to pay off their forward mortgage, thereby relieving the borrower from the burden of that monthly payment. In this scenario the logic to getting an ARM is reduced to a wash against the fixed.
With this in mind it's all personalities. Many will still grab that ARM but the more risk averse borrower will gravitate to the fixed. Keep in mind the fixed rate today is only slightly higher than the fifteen year average for the adjustable.
Invariably we get around to interest rates and how that affects the mortgage. The fact is for most seniors the adjustable rate mortgage is the right choice.
When I relate this to the customer they are temporarily in a state of denial until i have a chance to explain the inner workings of both mortgages. Once they reach understanding the guard comes down.
The biggest problem with the fixed rate, in the reverse mortgage business, is it does not offer the customer a line of credit option. The borrower is forced to immediately draw out that which the customer qualified to receive, or a smaller amount if the borrower so desires.
The senior gets a two for one deal with the adjustable. First: the senior chooses when to use the money; Second: Interest accumulates only against money's drawn out, leaving the remainder as a non factor.
This being the case there really is only one borrower that fits the profile for the fixed rate. It is the borrower who absolutely needs to take out a large lump sum immediately.
One of the best examples of a fixed rate candidate is the person who qualifies for just enough to pay off their forward mortgage, thereby relieving the borrower from the burden of that monthly payment. In this scenario the logic to getting an ARM is reduced to a wash against the fixed.
With this in mind it's all personalities. Many will still grab that ARM but the more risk averse borrower will gravitate to the fixed. Keep in mind the fixed rate today is only slightly higher than the fifteen year average for the adjustable.
About the Author:
A far more detailed discussion of ARMs versus static rate mortgages can be found at the the reverse mortgage guide of Texas. Q&A plus excellent Texas data and links to important authority sites are at reverse mortgage education for deep thinkers.
posted by Credit Counseling at
11:53 PM
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