Which HECM reverse mortgage loan program makes the most sense for your financial goals? The variable-rate or the fixed-rate HECM? We’ll fill you in on how they both work so you can make an informed decision.
Most HECM lenders offer two types of HECM loan programs, the variable-rate HECM, and the fixed-rate HECM. The differences between the two are in how the interest rate is structured and how you can receive the funds.
Which program is best for you depends on your goals for the reverse mortgage. For more information about each program, click the links below.
Which loan program makes the most sense?
Whether you go fixed or variable loan program depends on your financial needs, goals, and your comfort level with an adjustable rate. The variable-rate HECM is far more popular today because it offers more payout options and often more money. The variable-rate HECM makes more sense if:
- You definitely want a term/tenure plan and/or line of credit. The fixed-rate HECM offers only a lump sum payout. If you want to go with a term or tenure plan or line of credit, the variable-rate HECM is the only option.
- You owe little to nothing on your home. The variable-rate HECM will likely offer significantly more money if you owe little to nothing on your home.
- You don’t want all the proceeds right now. The fixed-rate HECM requires all proceeds to be taken as a lump sum at closing. If you prefer not to take all the proceeds right now, then a variable-rate HECM makes more sense.
- You want to maximize proceeds. Again, the variable-rate HECM usually offers more money than it’s fixed counterpart. If you want the most money possible, the variable-rate HECM may be the way to go.
The fixed-rate HECM might make more sense if:
- You’re truly nervous about an adjustable rate. The reverse mortgage is intended to alleviate financial worries, not create new ones. Don’t forget that no mortgage payments are required (as long as you keep your program obligations) regardless of of whether you have a variable-rate HECM or a fixed-rate HECM. Keep in mind that your payment is always zero even if the initial interest rate rises on the variable-rate HECM. However, if an adjustable rate still worries you, go with the fixed-rate HECM.
- The net proceeds between the variable-rate and fixed-rate HECMs are the same. If you have a large mortgage balance, the variable and fixed products may offer about the same amount of money at closing. In such a case, it might make sense to choose the fixed-rate HECM if an adjustable rate concerns you.
Regardless of the loan product you select, you’re never required to make a mortgage payment as long as you pay your property charges and at least one borrower or non-borrowing spouse is living in the home.
