Even though the reverse mortgage is a relatively new program compared with other kinds of loans, it’s gone through several changes which have eliminated some kinds of reverse mortgages, such as the Treasury rate reverse mortgage and the jumbo reverse mortgage. Different reverse mortgage programs are still available, however, and it is crucial to understand what to look for when considering those programs.
Evaluate the rate of interest for each mortgage product that is reverse. Only an adjustable-rate and a fixed-rate reverse mortgage loan are available. The rate of interest used for each program can differ from lender to lender. The rate of interest for the adjustable-rate program is lower than for the fixed-rate program. However, while the fixed rate can’t change when a homeowner is enrolled in the program, the flexible rate can change. Note that the flexible rate can’t rise over 10 percentage points in the rate at the start of the loan.
Inspect different options for distributing the money. Under Department 206.19 of Title 24 of the Federal Code of Regulations, a reverse mortgage could be distributed as a lump sum, as monthly payments or held on a credit line. Generally, the adjustable-rate program offers all three options. By comparison, the program usually provides the money for a lump sum. However, the quantity available under the fixed-rate program is generally greater than that offered under the adjustable-rate program.
Compare the costs of the different programs. The loan-origination fee is generally much lower with the byproduct than with the flexible. Some lenders may even supply the fixed-rate program with no origination charge. A monthly service charge imposed by the lender can also vary between $25 and $35. As with all the loan-origination fee, the monthly servicing fee is generally lower with all the fixed-rate program than using the adjustable-rate program. Note that costs for the adjustable-rate and fixed-rate programs differ widely among lenders and fluctuate on a daily basis. Based on the creditor and the present market conditions, costs typically vary from free to more than 20,000.