One of the most important steps in getting a reverse mortgage is shopping around and comparing offers. If you go into the entire situation blind, it is easy to fall into the traps many agencies set to take advantage of you. Even when dealing with honest agencies, you deserve to get as much for your home as you possibly can.
This can all seem very overwhelming at the beginning, but if you do your research properly, you can even surprise agencies with your knowledge and avoid being taken advantage of. Look to compare rates and be sure to take into account whether you want fixed or adjustable rates. Neither one is better; they are both incredibly advantageous in the correct situations.
Fixed vs. Adjustable Rate
In a fixed rate mortgage, the rate of the loan stays at the position it is at currently. In an adjustable rate mortgage, the rate will generally start below a fixed rate mortgage, but will move over time with the market values; these rates are almost always higher than the fixed rate mortgages later on down the road.
To figure out which one is right for you, consider how long it will take for the loan to be repaid. This is often impossible to figure out and may end up being a shot in the dark without talking to a consultant about your finances.
Lump Sum vs. Line of Credit
Another consideration that must be made is lump sum vs. line of credit. As the name suggests, a lump sum payment will literally allow you the entire amount you are receiving in cash (usually slightly less than 50% of the equity in your house) at the very beginning. A line of credit will give you portions of the total money over a period of time whenever you choose to withdraw it.
Why would anyone not want all of their money at once? The reason is simple: lump sums are generally considerably more expensive than lines of credit. Once you withdraw (or more technically are loaned) the money, it begins accruing interest. In a lump sum, all of the money accrues interest from the beginning. In a line of credit, only the money that you have already taken out will accrue interest.
What, then, is the benefit of a lump sum payment? First of all, sometimes a person may need all of the money due to some extenuating circumstances—this is obviously the go-to option. Another less obvious reason is that line of credit reverse mortgages are only offered in adjustable rate mortgages. If adjustable rate mortgages are completely out of the question for you, then you should definitely stay away from this option.
To get the best idea of what is right for your financial situation, you should talk to a consultant and carefully examine your finances. Take into account things such as the amount of money that you need and honestly assess your ability to budget your money.