Reverse Mortgage Rates

Reverse Mortgage Rates

Interest Rate – Fixed or Variable rate?

You have a choice of either a fixed or variable interest rate. It really depends on your specific situation as to which rate is best for you. Here are the facts of how each choice works:

Fixed Rate

The interest on a fixed rate reverse mortgage is fixed for the entire life of the loan. It never changes. That is the up side.  However, this option also has a couple of down sides:

  1. The fixed interest rate option requires you to take all the money from the loan at the time of the closing. This means that you cannot receive the money as a monthly payment or a line of credit. There are also limits on the amount of money you can receive within the first 12 months of the loan that can restrict the amount of funds you actually receive at closing.
  1. A fixed interest rate is typically higher than the adjustable rate option.  Also, if the interest rates drop, the only way to lower your rate is by refinancing the loan.

Adjustable Rate

Before we dive too deep into the discussion of adjustable interest rates, I want to remind you that interest rate changes on reverse mortgages affect you differently than they do on a traditional forward mortgage or home equity line of credit (HELOC).

If the rate on your forward mortgage or HELOC changes, it causes your payment to change (up or down).  This can have a serious impact on your monthly budget (especially if your payment increases!).  However, when the interest rate changes on your HECM loan, it does NOT affect you directly.  This rate change does affect the amount of interest you are charged,* but since there is no principal or interest payment required for reverse mortgages, there is no impact to your monthly budget.  

You should keep this in mind when weighing the pros and cons of interest rate options.

Annually Adjustable Variable Rate 

With the annually adjusted variable rate option, the interest rate can change one time per year. The maximum annual rate change can be no more than 2.00% up or down. This is called the annual cap. The maximum the rate can change over the life of the loan is 5.00% up or down. This is known as the lifetime cap.  

Monthly Adjustable Variable Rate 

With the monthly adjusted variable rate option, the interest rate can change every month. The maximum it can change is by 5.00% on any given change. This is the monthly cap as well as the lifetime cap. 

The biggest difference between the fixed or variable rate is how you receive the funds. 

With the formula FHA uses, the government basically dictates to the lender how much can be borrowed with a reverse mortgage. The lender is required to make that full amount available to you. However, you do not necessarily have to take it all…unless you chose the fixed rate. The adjustable rate can provide you with more flexibility. 

With the fixed rate, you must take whatever amount is available to you in one lump sum.** This option works great if you have a big mortgage that you need to pay off and plan to take most of the money anyway. But if you own your home free and clear, or don’t need a lot of money upfront, the fixed rate option may not be in your best interest. 

The HECM reverse mortgage program restricts the amount of upfront funds that you are allowed to draw out at closing to 60% of the “principal limit” during the first 12 months of the loan unless the funds are being used to pay off an existing mortgage or lien on the home. In this case, you can draw enough to pay off the mortgage or lien, plus up to 10% of the principal limit, or up to the maximum principal limit, whichever is less. Any remaining funds will be available as a line of credit or monthly payment after 12 months from the date of closing.

With the variable rate, you have a choice of how you receive the money. You have five different pay-out options:

  1. Line of Credit 
    The available money is placed into a credit line that you can draw on whenever you wish, up to the credit limit. You are only charged interest on the amount of money you have actually used.
  2. Lump Sum 
    Just like the fixed rate, you take all the money that is available to you, (within the 60% cap limits, but any amount left over can be left in the line of credit and are available 12 months after the closing). 
  3. Tenure Payment 
    This is where all the money that is available is paid out in equal monthly payments for as long as either homeowner lives in the home.*** 
  4. Term Payment 
    All the money that is available to you is paid out in equal monthly payments over a set period of months or years. At the end of this “term”, the payments will stop. However, you can continue to live in the home.*** 
  5. Combination of any of the above options 
    You can take an immediate cash advance at the closing of any amount (up to the 60% limit), and either place the rest of the money in a line of credit, receive it as a monthly payment, or a combination of both.

*If you elect to set up a reverse mortgage line of credit plan, increases in the rate can actually have a net benefit for you because the line of credit has a growth rate attached to it that increases or decreases along with the rate that you are charged on the balance owed. 

**If a fixed rate is chosen, the maximum cash at closing is restricted to 60% of the principal limit or enough to pay off an existing mortgage or lien, plus up to 10% of the principal limit, or up to the maximum principal limit, whichever is less. No line of credit or monthly payment is allowed. Any remaining available funds will be forfeited
*** The above payment plans assume all homeowners are at least 62 years old at the time of the reverse mortgage application. Any existing line of credit or monthly payments will be frozen and unavailable if a younger, non-borrowing spouse, (NBS) is still living in the home when the older borrower passes away.

Reverse Mortgage Guide

Free Reverse Mortgage Guide

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Tim Mallory
Tim Mallory

Just left us a 5 star review

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Tim Mallory
November 11, 2022

Bruce is one of the most professional, knowledgeable and efficient experts I have worked ŵith ever in any field. He is fast to answer and always ready to help...and he's a great guy!

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Kathleen Mitchell
September 18, 2022

I was hesitate about getting a reverse mortgage until Bruce Simons put my mind at rest. He is easy to work with, extremely knowledgeable and efficient. Things get done and he will make sure that you understand every part of the process. I interviewed several other people and he was hands down.....The only choice.

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Mike Hoeffner
August 30, 2022

Doing a Reverse Mortgage is a major decision, when working with Bruce he came out personally to go over every thing in detail, there was no pressure to finalize the transaction, I had even put the loan on hold for awhile even though I had locked in my rate, I had called Bruce off and on for a few weeks to ask questions that I had concerns about and he was always available to talk to me. In the end it gave me time to feel comfortable about my decision to move forward with the Reverse. Bruce was very pleasant to work with and would certainly recommend Bruce if you are going to consider a Reverse Mortgage.

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Jonathan Maiolatesi
August 22, 2022

Bruce Simmons at American Liberty is one of the best in the reverse mortgage industry. I have known and worked with him for years and he always does a great job. You are in good hands with Bruce and know that he will take good care of you or your loved ones every step of the way.

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Ronda Giblin
August 20, 2022

Best thing I ever did! Bruce Simmons at American Liberty Mortgage is the best. He is always there to answer your questions, and can easily explain the whole idea of a Reverse Mortgage. He takes the time and goes through the entire process with you. It worked out so well for me. Thank You Bruce!

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John Bell
August 20, 2022

We had researched Reverse Mortgages for 5 years and after hearing about Bruce Simmons and meeting with him, we finally decided to move forward with the Reverse Morgage. It has been over a year now and we are still very pleased with our decision. We think Bruce is very professional, knowledgeable and honest. Thank you, Bruce, for all your help.

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Mary Bernard
August 19, 2022

I first met Bruce Simmons 2017. I found him on the internet. I was looking for someone local. I called him and explained I was only looking into doing a reverse mortgage, so I did not want him to think this was something I was ready to do. Bruce was friendly, very open about the basics of a reverse mortgage. Bruce came to my home and presented the figures and other details that he could offer. The first thing that impressed me was this was not a hard sell, more of a informational meeting. He was very open about all of the details, and answered my questions without hesitation. What really was evident was he was establishing a relationship with me, and I realized he knew I would not take the loan at that time. There was not enough equity in my home, and I would have to bring money to the table. Although I was not ready to do a loan, Bruce assured me he is always available for questions. Four years later, I finally did do a reverse mortgage, and I couldn't be happier with having done it. I have done away with a mortgage payment which allows me to fund my retirement account with that mortgage payment. We did some much needed landscaping with our cash out transaction, and will move on to improvements inside of the house. My reverse mortgage has a line of credit, and I feel sense security knowing it is there if I need it. Bruce explained that a reverse mortgage is not for everyone, but I feel certain that he paved the way for a strategy that worked for me. I will definitely do a refinance when the time is right. I will check in with Bruce to be sure what the benefits are when I do it again.

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LESLIE HINES
August 19, 2022

I have worked with Bruce Simmons for 15 years. Bruce is one of the best in the industry. He is extremely knowledgeable, kinds and detailed in what he does. His clients love working with him and trust him to help them with their Reverse Mortgage loans. I would recommend Bruce to anyone I know that is thinking about or wanting to do a Reverse Mortgage. He will always take very good care of the customers and make sure their needs are met! Class act and one of the best in the industry by far!