HuffPost: Choosing the Right Reverse Mortgage

Reverse mortgages can be a saving grace for some retirees, but it takes knowing the complexities of these financial products to find out which type of Home Equity Conversion Mortgage  (HECM) works best for a borrower’s particular situation, according to a recent column from Jack Guttentag, a.k.a “The Mortgage Professor,” published by the Huffington Post.

“The HECM reverse mortgage is a beautifully designed financial instrument that can meet a wide variety of senior needs,” Guttentag writes. “Unfortunately, HECMs offer so many options that selecting the best option can be a challenge.”

In the article, Guttentag explains various HECM options, including fixed-rate versus adjustable rate reverse mortgages, and how each might fit better for a particular borrower, depending on his/her needs and interest rate preferences.

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“Although the interest rate on the FRM is higher than the start rate on the ARM, the ARM rate can rise by 5 percent or 10 percent,” Guttentag writes. “Many seniors in this situation select the FRM because of the rate certainty and the much publicized likelihood that interest rates (including those on ARMs) will rise in the future.”

Guttentag also describes the different combinations of interest rate and origination fee on fixed-rate and adjustable-rate reverse mortgages, including ARMs with high initial rates but low risk of rate increases vs. ARMs with lower initial rates but with greater vulnerability to rate hikes.

Read the Huffington Post article.

Written by Jason Oliva

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  • The article did not provide much guidance. While an adjustable rate HECM can be a very beneficial cash flow tool throughout retirement when used prudently, it is hard to view a fixed rate HECM as anything more than a product similar to any fully amortizing thirty year mortgage BUT with electable payment options including no payment due until the HECM moves into the due and payable status.

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