Unlock Big Savings: Check Out the Latest Reverse Mortgage Rates for August 2024!

In the realm of reverse mortgages, the Home Equity Conversion Mortgage (HECM) reigns supreme as the go-to choice for American homeowners. This federally insured option has established itself as the epitome of reverse mortgages, setting the standard for the industry. However, what may come as a surprise to many is the overwhelming prevalence of variable-rate loans within the HECM landscape.

It is a stark departure from the conventional fixed-rate products that dominate the traditional forward mortgage sphere. In June 2024, a staggering 99.81% of HECMs originated were adjustable-rate mortgages (ARMs), highlighting the rarity of fixed-rate HECMs like a mythical sighting of Bigfoot.

The appeal of the variable-rate HECM ARM is deeply rooted in its numerous advantages over its fixed-rate counterpart. Let’s delve into six key reasons why the variable-rate HECM ARM has become the preferred choice for many borrowers:

1. Security: With the HECM ARM, borrowers have the peace of mind of leaving unused funds in a line of credit that remains unaffected by market fluctuations. This line of credit stays intact, even if the loan balance surpasses the home’s value, providing a sense of financial security.
2. Flexibility: The open-ended nature of the HECM ARM allows borrowers to access funds as needed, without any restrictions on when or how much they can borrow. This freedom to draw funds, pay them down, and borrow again after the first year offers unparalleled flexibility.
3. Optionality: Borrowers can easily switch between payment plans with the HECM ARM, transitioning from a line of credit to monthly tenure or term payments with a minimal fee of $20, offering them control over their financial strategy.
4. Accruals: By drawing only what is necessary and in small increments over time, borrowers can minimize interest accruals with the HECM ARM, optimizing their financial outcomes.
5. Organic Growth: The HECM ARM allows for natural growth in borrowing capacity, with the line of credit expanding in line with the compounded rate applied to the loan balance. This unique feature facilitates financial planning and maximizes the benefits of a reverse mortgage.
6. Prepayment Growth: Voluntary partial prepayments with the HECM ARM can enhance the line of credit dollar for dollar, bolstering the borrower’s equity position and potentially qualifying for an IRS Form 1098 tax deduction, subject to consultation with a tax professional.

As the market anticipates a decline in interest rates, HECM ARMs may offer more favorable rates in the short term. The recent drop in the 10-year Constant Maturity Treasury (CMT) weekly average has created a window of opportunity for new HECM applications and closings in August, paving the way for homeowners to review and update their loan proposals for enhanced financial outcomes.

With the downtrend in interest rates signaling a promising third quarter for loan production, homeowners are encouraged to seize the moment and explore the potential benefits of HECM ARMs in the current market landscape.