Fixed or Adjustable Rate Massachusetts Reverse Mortgage?

When you are considering a reverse mortgage, your interest rate will be a significant part of the decision. There are pros and cons for both a fixed and adjustable.  I will get into breaking down the differences to help you understand how the rates are determined, the options for borrowing your money, and prepayment differences.

Interest rates, whether fixed or adjustable, will impact you in 2 ways.  First, it will determine how much the loan will cost you.  Second, it will be used in calculating how much you qualify for.  You can go to our page on reverse mortgage interest rates to get a more detailed breakdown of the rates involved.

When considering the costs of a reverse mortgage it is important to evaluate the interest rates and how they will impact your situation.  Besides interest rates, you also need to consider servicing fees and closing costs.  All three of these factors need to be analyzed when considering the costs of a reverse mortgage.  Here In this blog, we are only going to discuss interest rates.

The biggest difference with interest rates will be whether you choose a fixed rate or adjustable rate reverse mortgage.  Fixed rate reverse mortgages do require you to borrow 100% of the proceeds at closing.  If you are not paying off a large mortgage, or have an immediate need for the monies, this may not be the best option for you.  If someone is encouraging you to invest the monies, we strongly urge you to walk away.  This is not a good investment.  If there is additional money you are required to pull out you may want to consider a CD or Money Market to offset a small portion of the interest.  You should also contact a tax advisor as any interest earned could have tax implications.

If you do not have to pull the majority of the monies out, then you are more likely better off with an adjustable rate reverse mortgage.  This would allow you to only take what you need when you need it.  Interest will only accrue on the monies you stick in your pocket.  The unused monies can be set aside in a Line of Credit or used as a Monthly Advance.  This will give you a lot more flexibility in how you use your monies available.

The last thing I would like to cover is the ability to partial pre-pay a reverse mortgage.  You need to understand a fixed rate reverse mortgage is a closed-end mortgage and an adjustable rate reverse mortgage is an open-end mortgage.  If you make partial prepayments to a fixed rate reverse mortgage, you will not be able to access those monies in the future.  Yes, it will pay down your loan balance, but those monies will not be able to be accessed.

An adjustable rate reverse mortgage is an open-end mortgage.  If you decide to make partial prepayment s, it will pay down your existing loan balance and will also make those monies available to you in your Line of Credit.  This is a great feature in the event you are required to draw down your minimum distributions in tax deferred investments.  It allows you to pay down your loan balance, while not losing access to those monies in the future.  We encourage you to work with your financial planner when considering this option.  We work with many planners implementing such strategies, which help to maximize your liquidity and make your monies last as long as possible.

Interest rates are only one consideration when deciding which options are best, and we will get into further discussions of other costs to consider when choosing a reverse mortgage in future blog posts.  Thank you for reading our discussion on fixed or adjustable rate with a Massachusetts reverse mortgage.