Reverse Mortgage Misconceptions: Are the Interest Rates Really High?

There’s a lot of misinformation in the media and online about the HECM reverse mortgage, so I’m doing a series of posts that correct some of the most common misconceptions that I read and hear from mortgage clients.

Be sure to check back as I post on additional topics over the coming days and weeks.

If you’re not familiar with what a HECM reverse mortgage is and how it works, be sure to check out my post What is HECM?.

Are Reverse Mortgage Interest Rates Really High?

For some reason, a lot of people are under the impression that HECM reverse mortgage rates are really high, but this is definitely not the case. A reverse mortgage does come with some added risks for a lender, including the fact that there is no credit or income qualification and no payments required, so it’s reasonable to expect a little bit of a rate premium over the typical 30-year fixed mortgage. However, it isn’t that much of a difference.

I recently quoted a fixed rate reverse mortgage with a rate that was probably within 0.25% of what the borrower would receive if he’d financed the same amount with a traditional 30-year fixed loan. This is not much of a difference at all.

When interest rates hit their record lows late last year and May this year, many reverse mortgages were going out with rates in the high 3% range.

Conclusion

Yes, you can expect the average reverse mortgage to carry a bit of a rate premium over the average 30-year fixed mortgage, but it’s not a big difference. It’s very likely that any reverse mortgage rate quote you receive will be within 0.50% to 0.625% of the typical 30-year fixed mortgage rate – if there’s much of a difference at all.

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About Mark Fitzpatrick

Mark Fitzpatrick is a reverse mortgage professional with over seven years of experience in mortgage banking. In his spare time he enjoys reading, skiing, surfing, and spending time with his family and friends. You can stay current with Mortgages By Mark by getting free email blog updates or subscribing to my RSS feed. NMLS #382064.
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