The 5 Reverse Mortgage Interest Rate Picking Arguments

If you are a senior, who thinks that it is not that important, which reverse mortgage interest rate you select, because nothing will be paid back during the running time, please change your attitude right away! The interest rate is one of the costliest element in the final costs.

1. The Longer The Running Time, The More Difficult Is The Predict The Rates.

The interest rate is the cost of the money, which the lender uses to pay his interest rate, the operating costs and the profit. The central banks regulate the economy with the interest rate. When the rate is low, the borrowers take more loans and when it is high, the demand of the loans decreases. The loan amount influences on the operating costs of the borrowers and thus to the whole economy.

We can quite sure say, what is the reverse mortgage interest rate for the next year, but it is quite difficult to predict the average rate for 20 years, for example. Here also the history is not a good source of prediction, which we have seen during the finance crises, for instance.

The longer is the running time of the reverse loan, the more difficult is to predict the development of the economy and thus the interest rate. But if the borrower uses his or her own, strong idea of the rate development, then he may trust on that.

2. The Variable Rates And The Risks.

the variable rate means, that the rate follows some index during the running time of the loan. This means, that the rate can exceed the fixed rate alternative, but also be below that. This rate is for a risk taker, who trusts that the market rates work better, than the fixed rates.

3. The Fixed Rates And The Risks.

The good feature of the fixed rate is, that the borrower knows in advance, how much the rate will be for every single year of the running time. This helps the financial planning and gives quiter nights. If the borrower is interested, he can calculate afterwards, what would the difference have been between the variable and fixed rates.

4. Remember, That You Pay Interest On The Top Of The Earlier Interests.

Because with the reverse loan nothing will be paid back during the running time, all costs will be accumulated. This means, that the total loan amount includes the original capital, all earlier interests and costs and fees. So the borrower pays interest, which is calculated every year, or month, based on the total loan amount, which he owes.

5. Trust On The Idea, Which Fits To You.

Because nobody can say, what reverse mortgage interest rate is better for the whole running time, the solution to select one is to trust on your own idea. If you want the risk free alternative, then your choice is a fixed rate, but if you think, that the variable market prices fit to you, then the variable alternative is for you. It is wise to talk with the reverse loan counselor or your bank manager to get the expert view also. However, the responsibility is always with the borrower.