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There is not as much flexibility in how you get your funds, but there are a couple of very good things that fixed rate reverse mortgages can do. For example, right now with all the increases to the margins that the adjustable rate loans have seen as of late, the fixed rate that we have offers borrowers more cash in their pocket than any of the adjustable options.

We have put several articles out regarding the differences between different options that borrowers have when receiving their cash under the HUD Home Equity Conversion Mortgage (HECM or -Heck-um-) reverse mortgage program. There are benefits and drawbacks to both the fixed rate reverse mortgage and the adjustable rate programs. For example, the adjustable rate programs offer much more flexibility.

You can take all your funds as a lump sum at closing, a payment for life or a set term, leave it in a line of credit for use when you desire or a combination of any of the above. With the fixed rate, the choice is only a one time disbursement at settlement and then due to lender-s programs, their calculators, etc, the borrowers- only option is a full draw of the funds available to them.

Now this may seem strange to some. In fact, we had one caller call our office and accused two of us of being liars due to the fact that she was an educated woman and she refused to believe that any program would exist that would require a borrower to take the full draw amount, especially if they did not want to!

We explained to her that it was the way the program was written, that the lender had no software for a partial draw and that if she wanted to pre-pay any portion of the loan, she could do so without penalty at any time. She refused to believe this could be possible, choosing to believe that we were deliberately misleading her. Her basic premise was that HUD would never require her to take more money than she wanted, and she is correct! HUD does not require her to take more money than she wants to-but that is why there are other options available.

This lender-s fixed rate reverse mortgage program simply was not the right product to fit her needs and desires. There may be a fixed rate program in the future that allows for borrowers to take only a portion of the funds or a method may be found to make a fixed rate reverse mortgage instrument an open-ended contract (allowing for lines of credit or more than one draw), but it does not exist today.

There is not as much flexibility in how you get your funds, but there are a couple of very good things that fixed rate reverse mortgages can do. For example, right now with all the increases to the margins that the adjustable rate loans have seen as of late, the fixed rate that we have offers borrowers more cash in their pocket than any of the adjustable options.

For borrowers who plan to take the full draw in the beginning anyway, such as those paying off an existing mortgage or those planning to use the money immediately for other purposes, the fixed rate will often give the borrowers thousands of dollars more than the adjustable rate option. Also, depending on what you think rates will do in the future, fixed rates will never change.

The great thing about a fixed rate (aside from more cash in your pocket) is that even if the indices, the LIBOR or Treasury that determine at what rate an adjustable loan accrues interest, start going up, the fixed rate loan will never increase. If rates do begin to rise due to inflationary pressures, the fixed rate borrower has the added ease of mind that their fixed rate will not increase with the inflation.

If you are considering a reverse mortgage and you need all your funds from the beginning, a fixed rate may be a fantastic option for you to consider. If you want a line of credit, a payment for life or are only looking for a small portion of the funds available to you, then you need to consider the adjustable rate options. As a side note, I can only assume that the borrower who called us continued her search for the fixed rate with a partial draw or more options and was just as unlucky elsewhere at finding them when we never received a second call.

If you feel like you really want the fixed rate option but you do not want all the funds, you can always take the full draw and then pay back whatever portion of the proceeds you do not wish to keep. You only pay interest on the outstanding portion of the funds, there is never a prepayment penalty and then you can have the fixed rate on the portion you desire. Just keep in mind that once you pay it back on the fixed rate, you cannot take the money back out again as you can with an adjustable rate program due to the closed end instrument. But it is an option for those who want it.

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