Reverse Mortgage Costs: Interest Rates ............................................................................................................................................................ There are very few loans in existence in today’s financial world that do not have some kind of interest associated with them and unfortunately the reverse mortgage is not one of those loans. Just like any other home loan that you can find, a reverse mortgage loan comes with terms of interest rates attached to it. These interest rates are there to make sure that the people giving out the loan are making money. Loans are a service industry and just like every other service industry, they come with a cost. The big advantage of reverse mortgage loans in comparison to other home loans is that the interest rates can be paid by the actual equity in the home, so you don’t have to worry about paying either the principal or the interest rate on the loan for quite some time.
Average Interest Rates
The first thing you need to understand about reverse mortgage interest rates is that they are all variable. Whether or not this is an advantage or a disadvantage is a matter for another article, but there are no reverse mortgage interest rates that are fixed as you might find in other home loan agreements. Now, while they are all variable rates, this does not mean that all of the rates will vary in the same way, shape or form. In fact, different types of reverse mortgage loans from different reverse mortgage lenders will have different interest rates simply because the method of keeping track of variability in the market is different.
Private Financial Index
There are two major methods that are used for keeping track of variable rates within the housing market and the first one is through the use of a private financial index. This could be an index along the lines of the ones that stock brokers use when they invest in real estate companies or it could be something created by a formula that is proprietary and developed by the reverse mortgage lender, but the main point to consider is that it is a private financial index. This means that the variability is determined by a corporation, rather than by the government or any part of the public sector. Now, it is important to realize that for the most part there is little difference between a private financial index and a public indicator in terms of one being better than the other, but it is still worthwhile to know what information the reverse mortgage lender uses to make their decisions regarding the changing interest rates.
US Treasury Figures
The other major method that is used is tied towards the United States Treasury. Because the treasury regularly publishes information regarding their securities and this information can easily be cross-referenced with interest rate information given out by the federal reserve; public sector information can be used to keep track of variability in the housing market, and therefore can be used as indicators by reverse mortgage lenders when they decide on which direction their interest rate should go.
