Reverse Mortgage Rates
It turned out that the couple was eligible for far more than they wanted to borrow.
In addition to the $ 400,000 for the building improvements, they want an additional $ 250,000 to pay off $ 150,000 in unsecured debt, along with $ 70,000 in deferred property taxes that must be paid off before any reverse mortgage can be issued. (Note that once the reverse mortgage is registered, they can reapply for the property tax deferral program.) That is a total loan of $ 650,000, or 18.6% of the equity of the home.
But they also like the idea of having extra equity on hand to borrow in case they have unexpected expenses in the future, especially during a market dip when they may have to sell investments at a loss. As such, they opted for a reverse mortgage credit limit of $ 1.2 million (34% equity), with an immediate capital withdrawal of $ 650,000 and an additional $ 550,000 available for future needs.
Here’s how the interest rates on this loan compare:
|Equitable Bank Flex Reverse Mortgage||HEB CHIP reverse mortgage|
|Variable interest rate||4.09%||4.09%|
|Fixed for 1 year||3.89%||3.99%|
|3 years fixed||4.39%||4.65%|
|5 years fixed||4.89%||5.14%|
Maggie and Rob would like to lock their rates, as experts expect a rate hike soon, so Equitable Bank is the clear winner here with the lower fixed rates across the board. For example, choosing Equitable’s Flex Reverse Mortgage 5-year fixed rate of 4.89% would save the couple more than $ 26,000 in interest over 10 years, compared to HEB’s 5-year fixed rate of 5.14%.
Take mortgage repayment fees into account
Both banks have no penalties for paying the mortgage on the death of the last borrower; and if the last borrower has to move to the nursing home, 50% of the penalty is waived.
But Maggie and Rob also want the ability to repay their reverse mortgage at any time (bny with so-called “prepayments”), especially if the stock market and their investments are doing better than expected. While both Equitable Bank and HEB charge prepayment fees, they differ in the way they calculate these fees, especially in the first three years.
HEB calculates the fee as a percentage of the total loan (5% in the first year, 4% in the second year, and 3% in the third year), while the Equitable Bank’s fees are based on monthly interest (5, 4 and 3 months interest in years 1 to 3). After three years, both banks charge three monthly interest. However, because Equitable Bank has lower interest rates, their prepayment fees are still lower.