All About Annually Adjusting Reverse Mortgages
A variation in the popular HECM program (Home Equity Conversion Mortgage) is the Annually Adjusting HECM. This has been around for many years now. But many lenders and borrowers simply never used them, because the difference between the annually adjusting HECM and the monthly adjusting HECM was huge making a big difference in the amount of money a senior got from a reverse mortgage.
Many agents, lenders and borrowers had nearly stopped looking at the Annually Adjusting HECM program a long time ago. But it seems that there is a re-kindling in the interest about this particular option from some senior borrowers looking for reverse mortgage. Understandably, counselors and financial consultants have been a little surprised by this. But the truth is that, in the current turbulent economic climate, the crazy rates movements have made the difference between annual and monthly adjusting HECMs very small indeed.
A huge advantage of the annually adjusting HECM program is that the rate cap is only 5. What this means is that the rate can go up by 5 % above the start rate in an Annually Adjusting HECM program, as opposed to the 10 cap of the monthly adjusting HECM program.
While this Annually Adjusting HECM program was thought to be discontinued by mortgage brokers and lenders, it does look like this annual adjusting HECM program may get a fresh lease of life. That is, if the current rates are still hanging on for quite a while to come.
Choosing between the Monthly Adjusting and the Annually adjusting HECM may be one of the important decisions to make for a senior home owner HECM borrower.
Below are the Advantages and Disadvantages of this option.
The advantages of Annually adjusting HECM program are as follows:
- More protection against any rise in the interest rates
- Higher initial growth rate on any unused line of credit
- Can be slower to adjust when the rates rise again
The disadvantages of Annually adjusting HECM program are as follows:
- Smaller upfront loan amount given
- The starting interest rate may be higher
- When rates fall, it is slower to adjust
The Annually adjusting HECM (Reverse mortgage) is a good choice, if the rates increase by less than 6.60% over the life of the loan. If the rates increase more than the 6.60% figure, the monthly adjusting HECMs are better over the life of the loan.
