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See what's happening with home values in more than 400 metropolitan areas with HSH's Home Value Tracker, just updated though the second quarter of 2022.

See what's happening with home values in more than 400 metropolitan areas with HSH's Home Value Tracker, just updated though the second quarter of 2022.

Are reverse mortgage interest rates fixed or variable?

Keith Gumbinger

If you are a homeowner age 62 or older and have equity in your home, you may be considering a reverse mortgage as a way to boost your retirement income, pay off some bills or to simply provide the peace of mind of knowing you have access to a line of credit.

The amount you can borrow from a reverse mortgage is based on a sliding scale according to your age and the value of your home. While the loan doesn't need to be repaid until you sell your property, move out or pass away, you should be concerned about the interest rate charged on the loan because the interest will be added to the principal balance along with any fees. The less you pay in interest, the lower the repayment amount. The interest rate will also impact how much you can borrow from your home equity.

Reverse mortgage interest rates: fixed or flexible?

The majority of reverse mortgage loans today are called Home Equity Conversion Mortgages (HECM) and they are insured by the Federal Housing Administration (FHA). According to the Department of Housing and Urban Development (HUD), who oversees the FHA, reverse mortgage borrowers may choose a loan with an adjustable interest rate or a fixed interest rate.

While many seniors prefer the security of a fixed-rate loan, those who prefer an adjustable-rate loan have the option of mortgage rates that adjust monthly or annually. The FHA does not require any limits on the rate changes of reverse mortgage loans that adjust monthly.

Adjustable-rate loans that are reset on an annual basis are limited to adjust by no more than two percentage points per year and by not more than five percentage points over the life of the loan. In other words, if you start with a mortgage rate of 5 percent, your interest rate can never go above 10 percent.

You can see the latest trends for fixed and adjustable reverse mortgage (HECM) rates and see how borrowers are using both fixed-rate and adjustable-rate HECMs to support their lifestyles.

When if comes to reverse mortgages and HECMs, there's a lot to know. A great place to start is with HSH's comprehensive Guide to Reverse Mortgages and HECMs

Every reverse mortgage borrower must meet with a HUD-approved reverse mortgage counselor who can explain in detail the pros and cons of a fixed-rate or adjustable-rate loan.

Ask the expert
Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
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AUG 18, 2022
A:

Mortgage rates fluctuate from day to day, depending on a number of factors related to the economy and to choices made by investors. While some mortgage money comes from deposits held by banks and credit unions, most of the funds for borrowers come from investors in capital markets.

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For the most part, this is a discussion about time. You should compare the total costs of the difference in the two interest rates over your given time horizon.

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