Other than the initial costs that you incur at the time of closing your reverse mortgage loan, the interest rate that you pay over the repayment period will contribute towards the total cost of your loan. Most of the initial charges are fixed on every available product in the market.
You can only a few options of negotiating for lower charges on these initial costs. The difference in loan charges among lenders will vary. Other than this, you need to pay close attention to reverse mortgage rates. Unlike the fixed charges, the rates apply on the prevailing loan balance and therefore have the power to increase the cost of paying your loan. The following information will assist you in evaluating reverse mortgage rates offered by different lenders to get the most affordable option.
Reverse mortgages come in two main categories. On one part, you have the loan that takes on the prevailing interest rates and on the other part; you have loans that present you with a fixed interest rate. Variations exist on the period of adjustments within the adjustable rates reverse mortgages. You can have monthly rates, semi-annual rates and annual rates. At the same time, the programs with an adjustable rate will have a maximum applicable rate.
Lenders will offer a particular adjustable rate option based on their prediction on how the market rates will behave. In a relatively stable market environment, annual adjustable rates are favorable, especially where future market rates may decrease. The lender will use monthly adjustable rates to be able to cash in on an ever-increasing internet rate regime. As a borrower, a monthly flexible rate will let you pay low interest charges when the market rates tumble thus lowering the cost of your loan. If you wish not to deal with the potential risk of a costly loan then you can opt for a reverse mortgage with a fixed rate. The certainty of this rate allows lenders to charge it slightly lower than the maximum applicable rate for the flexible rate programs.
Your home equity secures the reverse mortgage loan backed by the department of urban housing (HUD). These two attributes remove most of the loan-associated risks for lenders and in return, the reverse mortgage rates are always lower than what is available on standard mortgages. Private lenders provide most of the reverse mortgage loans and some state governments subsidize or provide direct reverse mortgage loans to their senior citizens. The state backed reverse mortgages rates for seniors are lower than the commercial alternatives but they are only available to a selected few people meeting their qualification criteria.
Choosing between a fixed rate and a flexible rate program can be a headache but you should always look at the long-term prospects. Think of your future needs for money and your ability to earn in the future as this determines your risk appetite. A flexible rate can be expensive when the rates are high but it is also a major cost saver when market rates tumble.