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The Power of 2.1%, the clear choice of Jumbo Reverse Mortgages

Cliff Auerswald's picture

For the borrower who is really trying to determine the lowest cost reverse mortgage for proprietary or jumbo reverse mortgage programs, they need to also review the missing element the margin. The margin is the amount that is added to the index to determine at what rate the loan will accrue interest over the life of the loan

The Power of 2.1%, the clear choice of Jumbo Reverse Mortgages

Many borrowers look at a few of the important aspects of their proposed jumbo reverse mortgage. How much money will they get, How much are the fees, what is the starting interest rate but so often these are about the only items they concern themselves with.

Some borrowers also insist on getting fixed rate reverse mortgages, but the fixed rates typically insure the borrower of paying an interest rate way above the current adjustable rates available and based on the averages of the indexes upon which the jumbo rates are ultimately determined, borrowers would have to go back over 17 years to find a historical average that would even approach making the higher fixed rates worthwhile. In other words, borrowers choosing today's jumbo fixed rates would have lost money to their adjustable counterparts as an average for more than the last 17 years. No one can predict the future, but the last 17 years include some very volatile markets and the borrowers would still be worse off at today's low rates with a fixed rate than going through those volatile markets with an adjustable rate.

So for the borrower who is really trying to determine the lowest cost reverse mortgage for proprietary or jumbo reverse mortgage programs, they need to also review the missing element the margin. The margin is the amount that is added to the index to determine at what rate the loan will accrue interest over the life of the loan.

In other words, two loans with the same index will accrue interest differently if one has a lower margin. Many reverse mortgages such as the Financial Freedom Cash Advantage program have a margin of 3.5%. The Independence Plan available through All Reverse Mortgage Company offers a 2.1% margin as an option for borrowers who are concerned with interest rates and how they will affect the future equity.

The margin is the hidden factor. The origination fee for many of the jumbo proprietary programs is around 2% of the principal lending limit, while the fee on the Independence Plan is .5% of the appraised value, which usually works out to the borrowers paying about half for the Independence Plan.

If you are considering a reverse mortgage on a jumbo or proprietary program, take a good look at the amortization schedules. Borrowers can save thousands of dollars over the years by choosing a program that accrues interest at a lower rate and this area of the decision is so often over-looked.

If your main motivation is to get the most money available and you aren't worried about the interest rates or the effects on your equity, then you should let your reverse mortgage specialist know this up front. Fixed rates also sound great, but if you have to pay 8 or 9 percent or more to get one, and based on historical averages the rates never pay off by having it fixed, you have to ask yourself if the higher fixed rates are worth it. But if you want a program that will give you an excellent initial draw while still accruing interest at the lowest rate possible, then the Independence Plan with the 2.1% margin may be just what you were looking for.

Any way you choose to go, a qualified reverse mortgage specialist is there to be sure your needs are met and should be willing to show you all options.

Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762

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