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.
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.