Unlike traditional home loans, reverse mortgages and all information about it, beginning from explaining its concept, to finding the best rates for seniors who can qualify for this, are neither easy to find or comprehend.
Reverse mortgages refer to the credit you receive in exchange for the equity of your fully owned primary home. Because no regular mortgage payments are involved, this is beneficial for the retired who want to augment their income or have funds saved for a rainy day.
Like with any other loan though, there are a variety of costs linked to reverse mortgages. Mortgage insurance premiums (MIP), origination fees, third party charges and servicing fees all need to be paid for these loans, otherwise called Home Equity Conversion Mortgages (HECM).
The United States Department of Housing & Urban Development (HUD) issues monthly statistics on the rates of interest (ROI) on reverse mortgages. Interest rates differ depending on the amount of loan you qualify for and the type of loan you chose, and whether it is a Government or privately funded loan.
The uniqueness of reverse mortgage is that interest payments are paid only at the end of the loan period or if the home is sold or the borrowers move out of the home permanently or pass away or the loan defaults.
The ROI depends on a few factors like your age and life expectancy, your home location and equity, and the disbursement option you choose.
There are two options – the fixed and the variable ROI. Fixed rates are decided by investors and the many government agencies who are assigned to keep these stable. But more popular are the monthly variable rates, while semi-annual or annually variable ones can also be purchased.
In the variable ROI, an index and a margin are set by the lender. After the loan is created, while the margin – the interest percentage that is added to the index by the lender – remains unaltered, the index oscillates by the financial market conditions and is not controlled by the lender.