Reader comment: Monthly adjustable rate on reverse mortgage
- Posted by admin on May 6th, 2009 filed in Reverse Mortgage Info
- 2 Comments »
Everyone once in a while someone will write into Reverse Mortgage Loan Blog with a comment worth sharing. Esther, who is in her early 70s, writes:
I was just contacted by the loan officer regarding my reverse mortage-the lender wants to change the adjustable rate monthly instead of every six months. Also, they want $5000 closing costs to redo this loan–they want to be able to resell the loan. The margin would be changed to 2.75 instead of 3.5. I worry that if rates go up fast I would be stuck every month with a rate increase instead of every six months. Initially the rate would be cheaper. This is a Financial Freedom loan. It is hard for me to analyze this and whether it is to my benefit. I owe $185,000 on this and have a cash account of $177,000 presently.
I am tossing this comment out front for feedback and advice from any of our readers.
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May 8th, 2009 at 10:44 am
I have heard of this happening. I believe that this client ought to think about it. The reality is that the index used will be less and that the 2.75% margin (with Treasury Rate Index) is a steal in today’s market. If you are unclear about it, sit down with someone you trust (previous loan officer) and see all of the terms laid out. The rate adjustment from every 6 months to monthly may not be as big of a deal than it sounds. You may be able to negotiate some terms. I don’t think this is actually a bad deal from the sounds of it. The overall rate may be very good in the long run.
May 11th, 2009 at 10:14 am
Thanks Greg for the comment. I Checked the historical graph on monthly Libor rates so that is ok. However, they also want to charge me $5000 for recasting this loan, which is to their advantage. I already added the huge closing costs of $15,000 two years ago to the loan. Guess I’ve always been concerned about losing $12,000 in equity each year–I could still sell the duplex and move to a cheaper state than the Central California coast! But the cost of selling, capital gains if I don’t do an exchange on the rental part, etc., are daunting too!