Fixed Rate Reverse Mortage - Limits Options
The senior community is still getting its proverbial feet wet when it comes to the reverse mortgage. As such I spend the vast majority of my time educating them on the basic workings of the mortgage.
Conversation eventually makes its way to the mortgage options for them and more particularly the interest rate. The truth is that the ARM makes sense for most seniors.
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.
By allowing the choice of when to draw out money the adjustable offers the borrower an uncontestible advantage over the fixed in that interest accrues only on drawn out money. The rest is safely not accruing interest against the equity of the home.
So, who is our fixed rate borrower? It is definittely the one has to yank out a bunch of money up front. At the end of the day, its the one who has no need for the line of credit because very little or no money remains.
A good example is someone looking to pay off a mortgage to eliminate the monthly payment. Most fixed rate customers are in this boat, because there main goal is to free up monthly funds. They are not really interested in having a cushion of money at their disposal.
Although the ARM product is currently approaching an all time low, its 15 year average is just below the current fixed rate. This comes down to personalities. In my example the more conservative individual may lien toward the fixed rate mortgage.
Conversation eventually makes its way to the mortgage options for them and more particularly the interest rate. The truth is that the ARM makes sense for most seniors.
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.
By allowing the choice of when to draw out money the adjustable offers the borrower an uncontestible advantage over the fixed in that interest accrues only on drawn out money. The rest is safely not accruing interest against the equity of the home.
So, who is our fixed rate borrower? It is definittely the one has to yank out a bunch of money up front. At the end of the day, its the one who has no need for the line of credit because very little or no money remains.
A good example is someone looking to pay off a mortgage to eliminate the monthly payment. Most fixed rate customers are in this boat, because there main goal is to free up monthly funds. They are not really interested in having a cushion of money at their disposal.
Although the ARM product is currently approaching an all time low, its 15 year average is just below the current fixed rate. This comes down to personalities. In my example the more conservative individual may lien toward the fixed rate mortgage.
About the Author:
A more comprehensive analyisis 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
11:16 PM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home