What is the interest rate on a reverse mortgage? Great question! And the answer is, it depends!
The rate you’re offered depends on conditions in financial markets, lender pricing, and what reverse mortgage product you select.
If you’d like to get an estimate of how much you can get from a reverse mortgage, check out our reverse mortgage calculator.
HECM rates are very reasonable
If you were worried that reverse mortgage rates are high, let’s lay that to rest right now. Interest rates on HECM reverse mortgages tend to be comparable to traditional 30-year fixed mortgage rates.
Having said that, it’s important to note that the HECM has MIP in addition to the interest rate. MIP is calculated on an annual basis just like the interest rate. If you want to calculate the total annual cost of the reverse mortgage, you want to add the MIP and the interest rate. For example, if the note rate is 4.5% and the MIP is 0.5%, then the total annual rate is actually 5%.
Whatever the interest rate, you don’t have to make mortgage payments as long as you meet program obligations. The HECM is designed to give seniors 62 or older access to a portion of their home’s value without a mortgage payment or giving up ownership of the home. As long as at least one borrower (or non-borrowing spouse) is living the home and paying the required property charges, no payments are required. If you choose not to make payments (which is the point, right?), then the interest and MIP just accrue onto the loan balance.
The rate depends on the product selected
The HECM comes in two “flavors”: the variable-rate HECM and the fixed-rate HECM. The product you choose impacts the interest rate you’re offered.
The fixed-rate HECM offers the security of a rate that never changes, but the rate is usually higher than the starting rate for the variable-rate HECM. The other downside with the fixed-rate HECM is that proceeds are only offered as lump sum at closing.
The variable-rate HECM typically offers a lower starting rate than the fixed-rate HECM, but there’s the risk the interest rate could increase over time. However, don’t forget that even if the rate increases, you’re still not asked to make a mortgage payment as long as you meet program obligations.
The variable-rate HECM is the most popular reverse mortgage today because it’s more flexible and tends to offer more money than the fixed-rate HECM.
Lenders sometimes have leeway to adjust rates
Depending on market conditions and the lender you’re working with, you may be able to negotiate the interest rate somewhat. It’s worth asking; after all the worst they can say is no, right?
A lower could mean getting a little more money from the reverse mortgage as well. Lower rates tend to mean more money will be available from the program.
What is the interest rate on a reverse mortgage?
If you’d like to estimate what you can get from a reverse mortgage, check out our reverse mortgage calculator.