Reverse Mortgage Interest Rates
What are The Interest Rate Options on Reverse Mortgages?
The interest rate option a borrow chooses will determine how much they pay for the loan as well as the amount they can borrow. A lower rate allows the borrower to cash out more equity in their home.
Most reverse mortgage rates are adjustable, but two types of interest rates on reverse mortgages are available: adjustable rates and fixed rates.
- Adjustable Reverse Mortgage Rates: The interest rates on an adjustable-rate loan can change monthly or annually, based on the London Interbank Offered Rate Index or Libor. This option provides multiple disbursement options that can help supplement an income as proceeds are received in incremental payments, either monthly or as a line of credit.
- Fixed-Rate Mortgage Rates: The security that comes with a fixed rate mortgage is that the interest rate will never change over the life of the loan. Comparable to traditional mortgage rates, borrower who select this option will opt for a lump sum payment. This type of payout can be used to pay of the home’s mortgage or an expensive debt.
Interest rates that are adjustable do offer more flexibility but do come with a risk of paying much higher interest rate if the market fluctuates. However, if you wait to use your money, the principle can grow, and lenders will only charge interest if you have withdrawn money. Payment options for adjustable reverse mortgages include a lump sum, a line of credit or a combination of the two.
How Are Reverse Mortgage Rates Calculated?
Interest on reverse mortgage loans depend on several factors: the bank you’re using, the current market, and the type of loan you’re seeking: fixed-rate or adjustable. Lenders will also look at a borrower’s income, assets, monthly credit history, and living expenses when determining your interest rate.
In 2017 a total of 55,332 reverse mortgages were closed with interest rates averaging approximately 4.585 percent, representing $10.6 billion in loan financing. Rhode Island had the lowest average interest rate at 4.37 percent, while South Dakota had the highest average rate at 4.72 percent. To see the average reverse mortgage interest rate in your state, visit our statistics page to see last years data.
A few other factors combined with your interest rate will determine the amount of funds you are eligible to receive through a HECM reverse mortgage. These factors include:
- Your age (or age of the youngest borrower on the loan)
- HECM FHA mortgage limit of $679,650
- Remaining mortgage balance
- Value of your home
- A financial assessment; capability to pay property taxes and homeowner’s insurance
Try our reverse mortgage calculator to see how much money you may be able to receive from a reverse mortgage.
Additional Reverse Mortgage Costs
As with any loan, the interest rate of a reverse loan is only a part of the fees and charges you may encounter in obtaining a reverse mortgage. There are also closing costs that you must pay for the HECM reverse mortgage product.
Mortgage Insurance Premium (MIP)
With a reverse mortgage you will be charged an upfront MIP to ensure you receive your loan advances in the event the company managing your account (your loan servicer) goes out of business. 2.0% of the maximum loan amount, the home's appraised value, will be charged to all borrowers. You will also pay an annual mortgage insurance premium, equal to 0.5% of the outstanding mortgage balance for the life of your loan.
Origination fees can range from $0 to the capped amount of $6,000 depending on the property value. Origination fees will cover the lender's costs for processing your loan. This is the only fee directly paid to your lender.
Lenders can charge a monthly servicing fee of $25-35 if the loan has an annually adjusting interest rate or if the rate adjusts monthly. This fee will cover lender costs of sending your checks, account statements, plus any additional customer service.
Third Party Charges
Borrowers may also encounter several routine mortgage related fees, such as an appraisal, survey, inspections, title, recording fees and credit fees.