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From its inception Print E-mail
From its inception, reverse mortgages only had adjustable rates. However, because of the fluctuation in interest rates, senior citizens have become very skeptical about the taking up adjustable rate plans. This changing preference of the borrowers has made the lending agencies to come up with fixed rate schemes. One of the major advantages of fixed rate reverse mortgage is the fact that the borrower is assured of a fixed and predictable quantity of fund. Thus, it is easier for the borrower to do his/ her financial planning and plan for expenditures accordingly. This gives a lot of stability too which is preferred by many a senior citizen. Another advantage of fixed rate scheme is seen when the interest rates rise. Since the rate is fixed, you will be paying lesser interest that is existing in the market. A fixed rate reverse mortgage is considered a safer option as you are not exposed to the vagaries of the interest rate which can change significantly due to economic conditions prevailing in the country. For an adjustable rate, the monthly statements can get seriously impacted by interest rate rise. They will keep getting the same amount; however the interest accrued will increase significantly. However, fixed rate programs are not devoid of a few pitfalls. Fixed rate option is only applicable for lump sum payment and you cannot avail of a monthly payment scheme or an extension of line of credit with fixed rate reverse mortgages. For senior citizens who have an existing mortgage to pay off, this option can sound good as you can use this lump sum amount to offset the outstanding lien in one go. However for those citizens who have hardly and need for lump sum money and would rather prefer a monthly installment, it is not such a good option. In this case, they will have to look for ways to park this lump sum amount into some investment opportunity to see that they get some monthly payments out of it. Also, the interest for the entire lump sum amount starts accruing as soon as the payment is made. In the case of monthly payment schemes, interest is accrued as and when part payments are made. Thus with monthly payments, the loan outstanding is less compared to lump sum payments and thus interest paid is also lower in the long run. Thus, monthly loan advances deplete the home equity of seniors at a slower rate than fixed rate plans. It has been seen that adjustable rate schemes are eligible for higher loan amounts than fixed rate schemes for the same value of property. Thus, fixed rate scheme has its own pros and cons. It is up to the individual to opt for it if it suits him better.


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