If you have checked out our Reverse Mortgage calculator and have determined that you have the kind of equity in your home to make a Reverse Mortgage work for you, your next step is to determine what Reverse Mortgage program best fits your needs. With a Reverse Mortgage you have two options: the HECM Standard and the HECM Saver. You also have choices with your rates: a Fixed Rate or an Adjustable Rate.
The Home Equity Conversion Mortgage (HECM) is the Federal Housing Administration’s (FHA), Reverse Mortgage. The HECM Standard is designed for people who need the most money available. This allows you to borrow the maximum amount of cash. On HECM Standard loans 2 percent of the upfront mortgage insurance premium is paid based on the appraised value of the property. The ongoing premiums are 1.25 percent of the outstanding balance.
The HECM Standard is a perfect for you if you are looking to pay off a big debt like a mortgage, credit card bills or remodeling your home. If you are in need of a large lump sum of cash, the HECM Standard is the option for you.
The HECM Saver is the second Reverse Mortgage option designed by the FHA. The purpose of this program is to lower the upfront loan closing costs for homeowners who want to borrow a smaller amount than what would be available with a HECM Standard loan.
With the HECM Saver you will have an upfront premium of only .01 percent of the property’s value, compared to the HECM Standard option which requires an upfront premium of 2 percent. Both the HECM Standard and HECM Saver have a monthly charge for the Mortgage Insurance Premium (MIP) at an annual rate of 1.25 percent of the outstanding loan balance.
If you are looking for a Reverse Mortgage with lower upfront closing costs and do not want to borrow a large amount that would be available with the traditional standard Reverse Mortgage, then the HECM Saver is the option for you.
For example, if you need to access a little extra cash each month you can elect to receive monthly payments or you can easily set up a Line of Credit. If you are a senior who is having trouble making ends mean meet or if you want to just have a little extra cash each month, the HECM Saver is a perfect option. You won’t accrue interest on the loan, until the first time you use it or the first payment you receive, unlike a fixed rate.
Once you have decided between the HECM Standard and HECM Saver, you will decide if you want to have a Fixed Rate or an Adjustable Rate. Each rate has different benefits depending on your lifestyle and your needs. Regardless of which rate you choose, the interest charged on a Reverse Mortgage loan is deferred which means there is no payment of interest until the loan is paid off.
Fixed Rate Reverse Mortgage
The fixed rate was not an option with the Reverse Mortgage until 2007. One Reverse Mortgage did not start to offer the fixed rate until 2009. What the fixed rate HECM does is it eliminates the risk of an adjustable-rate. The fixed rate gives you piece of mind knowing exactly what your interest rate will be for the life of the loan. Choosing a fixed rate also gives you the security of knowing the rate will never increase. The fixed rate mortgage only allows you to withdrawal your equity in one lump sum payment. That also means that your interest starts accruing on the full amount of the loan from the very first day. A Fixed Rate is only offered with the HECM Standard here at One Reverse Mortgage.
Adjustable Rate Reverse Mortgage
With an adjustable Reverse Mortgage, the rate changes monthly with the market. Right now rates are at record lows and have been for a few years.
You can have an Adjustable Rate Reverse Mortgage when you decide to take your payment monthly, in a Line of Credit or in a lump sum payment. You can even choose a combination of all three. If you choose to take a Reverse Mortgage and you want to take your payment in a Line of Credit or in monthly payments you can choose the Adjustable Rate or you can choose the Fixed Rate.
Whether you choose the HECM Saver or the HECM Standard, remember both are government-insured Reverse Mortgages. It’s important to evaluate your living situation and carefully decide which loan type will work best for you. The same goes when deciding between a Fixed Rate and Adjustable Rate.
Contact us today to talk to a Reverse Mortgage expert. We will help you decide which program will help you reach your retirement goals.