Choosing a Fixed or Adjustable Reverse Mortgage

Highlights

  • Use a fixed rate reverse mortgage if you need a large amount of money upfront
  • Use an adjustable rate mortgage to receive funds as line of credit, as monthly payments, as a lump sum, or any combination of the three.
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Decide between a fixed rate or adjustable rate reverse mortgage

Reverse mortgages can offer someone a steady income and security during their retirement years.  However, once you have decided a reverse mortgage may be right for you, you still face another choice – whether to borrow at a fixed or variable interest rate.

While a fixed rate reverse mortgage offers the benefit of a fixed interest rate over the life of the loan, it forces the borrower to take their loan as an up-front lump sum.  If you do not need the money on day one, this may cause you to pay unnecessary interest and erode the equity in your home much more quickly than necessary.  But if you do need a significant sum now – perhaps to pay off your mortgage or meet an unexpected large bill – the stability of a fixed rate reverse mortgage is worth considering.

For homeowners who do not need money immediately, an adjustable rate mortgage offers homeowners more options for receipt of their funds.  Homeowners can choose to receive the money not only via a lump sum, but also via monthly checks for a fixed period or for life, a line of credit, or any combination of the three.  These options help the borrower only to borrow funds when they need them; interest accrues only on funds received.

  Fixed Rate Mortgage Adjustable Rate Mortgage
Consistent interest rate for the life of the loan Y  
Interest rates adjust monthly or annually   Y
Receive funds as a lump sum Y Y
Receive funds as a fixed monthly payment   Y
Receive funds from a line of credit account   Y
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