Adjustable vs Fixed - ARM Wins in Reverse Mortgage World
A few days ago I received a call from a man looking for a reverse mortgage. After spend a bit of time reviewing his situation I came to obvious conclusion that he should get an adjustable rate mortgage.
Well, this isn't my first rodeo and know how most seniors feel about adjustable rates. So, my goal is, after I tell them they should get an ARM to explain myself as fast as humanly possible.
Why? Because I know the person is already objecting in their mind. It's already a bad deal. So, I get into why it is a good deal as fast as possible.
I lost the race. This guy was like Speedy Gonzalez. He immediately held up the proverbial stop sign and made it clear, in no uncertain terms, he wanted the fixed rate.
I knew he was being somewhat ignorant and the adjustable really was his best option. I tried again and he cut me off again, "FIXED RATE". He was a man of few words. I felt like a little kid being shushed by his father.
My would be customer refused to hear what I had to say, as if I was introducing a vampire into his home. Since you can't shut me up, perhaps you can read on and get a feel why the ARM is typically the better choice.
Quite simply, the fixed rate does not have a line of credit option and the ARM does.
Lenders qualify the senior to receive an available sum of cash equal to 50% to 75% of the home's value. Most only need a portion of this money. This makes the ARM and line of credit more viable.
The line of credit option gives the senior the right to draw out cash, use as needed, and leave the rest for later. At any time they can draw out more money.
This benefits the borrower's equity. Unused money in the line of credit has no negative affects on the borrower's equity. It's not accruing interesting eating away at the precious equity.
When a borrower goes with the fixed rate he takes out a sum of money, either the entire amount or a portion thereof. And "Ba Dee, Ba Dee, Ba Dee, Thats all folks!"
Let's say my guy above, who wouldn't listen to me, owned his home free and clear (which he did). He also wanted to supplement his income. His is the most obvious example of someone who should go with an ARM. Going with a fixed would force the borrower to draw out a big sum and put it into some other investment while waiting to use it.
The problem is his interest rate on the fixed rate would eat into his equity faster than the money in a bank or some other investment would grow (at least the investment I see today). The ARM in this case, ironically, is the better more conservative choice.
Well, this isn't my first rodeo and know how most seniors feel about adjustable rates. So, my goal is, after I tell them they should get an ARM to explain myself as fast as humanly possible.
Why? Because I know the person is already objecting in their mind. It's already a bad deal. So, I get into why it is a good deal as fast as possible.
I lost the race. This guy was like Speedy Gonzalez. He immediately held up the proverbial stop sign and made it clear, in no uncertain terms, he wanted the fixed rate.
I knew he was being somewhat ignorant and the adjustable really was his best option. I tried again and he cut me off again, "FIXED RATE". He was a man of few words. I felt like a little kid being shushed by his father.
My would be customer refused to hear what I had to say, as if I was introducing a vampire into his home. Since you can't shut me up, perhaps you can read on and get a feel why the ARM is typically the better choice.
Quite simply, the fixed rate does not have a line of credit option and the ARM does.
Lenders qualify the senior to receive an available sum of cash equal to 50% to 75% of the home's value. Most only need a portion of this money. This makes the ARM and line of credit more viable.
The line of credit option gives the senior the right to draw out cash, use as needed, and leave the rest for later. At any time they can draw out more money.
This benefits the borrower's equity. Unused money in the line of credit has no negative affects on the borrower's equity. It's not accruing interesting eating away at the precious equity.
When a borrower goes with the fixed rate he takes out a sum of money, either the entire amount or a portion thereof. And "Ba Dee, Ba Dee, Ba Dee, Thats all folks!"
Let's say my guy above, who wouldn't listen to me, owned his home free and clear (which he did). He also wanted to supplement his income. His is the most obvious example of someone who should go with an ARM. Going with a fixed would force the borrower to draw out a big sum and put it into some other investment while waiting to use it.
The problem is his interest rate on the fixed rate would eat into his equity faster than the money in a bank or some other investment would grow (at least the investment I see today). The ARM in this case, ironically, is the better more conservative choice.
About the Author:
To get California Reverse Mortgage myths, pitfalls and mistakes click me. For a very good and answer location about the California reverse mortgage is here.
posted by Debt Consolidation Loan at
3:15 PM
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