How Does A Reverse Mortgage Work - Different Kinds of Reverse Mortgage Rates

Unless you have been fortunate enough to be born to an extremely wealthy family, you would have to face the reality of having to go through the process of taking out a mortgage to provide you and your family the needed financial help to meet basic financial obligations and responsibilities.  There is a proliferation of different mortgage plans and programs that are available to the average American citizen to choose from.  One type of mortgage plans that is gaining popularity is the reverse mortgage program.

Apart from looking at the reputation of the financial institution offering reverse mortgage housing plans, it is also important to look into the rates that are applied to each reverse mortgage programs.  The reverse mortgage rates are determined by a number of different factors ranging from the period of time of the reverse mortgage plan to the amount that would be taken out and the frequency f the payment schedule.

Below is a review of some of the most popular reverse mortgage housing plans and the interest rates that are applied to them.

Home Keeper Reverse Mortgage

The interest rates that are applied on the different reverse mortgage housing plans offered by Home Keeper have been primarily based on the weekly average one-month secondary market CD index following a margin that has been set by Fannie Mae.  These averages have been published in the Federal Reserve’s H-15 Bulletin.  The initial interest rate and subsequent adjustments that may be made on the reverse mortgage plan rounded to the nearest 1/8 percent.  Over the course of the life of the reverse mortgage plan, the margin implemented would remain constant.  As such, it does not fluctuate based on the age of the individual applying for the reverse mortgage plan.  This means that the same interest rate would be implemented on the reverse mortgage plan whether the applicant is a young professional or a senior citizen.  The drawback of this reverse mortgage plan, however, is that since it is based on a monthly published margin, there is a possibility that the interest rate applied on the reverse mortgage taken out could fluctuate on a monthly basis.  While Home Keeper has placed a cap on the increase of the interest rate applied on the reverse mortgage taken out, the borrower should anticipate the increase of the interest to be as high as 17% on a monthly basis.

Home Equity Conversion Mortgage (HECM)

For this kind of reverse mortgage plan, the financial institution may opt to implement to utilize an initial rate or to use the current reverse mortgage rate to be applied on the reverse mortgage that is being taken out by a borrower.  Once the selected reverse mortgage rate is applied to the reverse mortgage plan taken out, this can no longer be changed.  This particular reverse mortgage program only provides an annual or monthly repayment schedule.  The interest rates implemented, whether it is the initial rate or the current reverse mortgage rates are set annually by the US Treasury.  It is advisable that the borrower would utilize the funds provided by this type of reverse mortgage plan since the repayment schedule would be based on the actual amount that is applied for, whether it is used or not.

Expected Reverse Mortgage

Expected reverse mortgage are very much similar to HECM reverse mortgage plans in that the interest rates are set annually by the US Treasury.  In the expected reverse mortgage plan the interest rate is one of the things that are taken into consideration when computing for the amount of the reverse mortgage that a borrower may be eligible to take out.  The maturity of expected reverse mortgages is approximately ten years.