Although the lower interest rate of a variable rate mortgage can look good in the beginning, you must also look at it from a long term perspective. A fixed rate mortgage allows you to keep better track of the balance on your FHA reverse mortgage. It’s very difficult to attempt to track a balance when the interest rate fluctuates monthly. If this was something that was done on an annual basis it would not be as complicated- however, when you do it monthly it can create havoc for the homeowner who is trying to keep track of the balance on his reverse mortgage.
Even though there will not be any interest payments on any of the funds you have not withdrawn, it is still easier to keep track of the balance of those funds you have already used if you choose a fixed rate rather than variable rate for your loan. It’s much easier to calculate the balance on $20,000 of funds over five years at a fixed rate rather than trying to figure the same thing with a variable rate. Even if your loan has a cap on the interest rate you don’t know during any month what the interest rate will be.
Even though the variable rate has a cap on it there is a possibility that the variable rate can exceed the fixed interest rate over time. For example, if you took out a reverse mortgage today at a variable rate of 3.25% and a lifetime cap of 10%, you can pay as high as 13.25% on the loan. On the other hand if you contract a fixed rte loan at 5.56% you are locked into that rate for the life of the loan. By locking your rate you don’t have to worry about the interest rate going up, you will always pay the same rate which is not the case with a variable rate reverse mortgage.
Perhaps you don’t want to sell your home and plan to live there until you die, what is the advantage to a fixed rate reverse mortgage in that case? Remember even if you never sell your home, the loan must be repaid before your heirs can sell it or take possession themselves. Any transfer of title requires the payment in full of the reverse mortgage first. Being able to know what the balance is on your loan, or a good assumption will help give everyone an idea what kind of profits to expect from the sale of the property.
Since your equity is not likely to increase much without payments being made on the loan, it is necessary to keep track of what funds you use against your loan, something that is much easier to do when you are dealing with a fixed rate loan in comparison to a variable rate reverse mortgage.
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