How Does Variable Interest Rate Work? Variable interest rates on mortgages, especially reverse mortages, and how they can work in your benefit. Visit www.charlesguinn.com for more information on the best way to use a reverse mortgage. To talk to Charles directly, call him in Southern California at 310-616-6965.
I have noticed over the years that borrowers have an aversion to variable interest rate loans in general, and that is understandable. There were people who were forced to sell, and some who lost their homes. Most people 62 or over lived through this time, and may know people who go hurt.
Those loans were ones with monthly payments. If those homeowners had the same loans, but without the requirement of monthly payments, they would never have lost their homes.. Now the folks, who are 62 or older, may be considering a reverse mortgage. A reverse mortgage has no required monthly payments. That means that no matter what the interest rate of the loan is, you will never lose your home for not making a loan payment. And the loan is guaranteed to last for your lifetime.
With an Open-End Loan you can take money out during the life of the loan. They’re more like a line of credit you would get from a bank, except there
are no required payments.
For example, you may get monthly income for life, or you may take out some money now and have the rest in a line of credit, waiting, so you could take out more whenever you need it. These open-end loans have a variable interest rate. This type of reverse mortgage is the most versatile and useful for financial planning purposes, like building cash for later in retirement, or increasing dividends from retirement accounts, and increasing Social Security benefits. For more information on these uses see my other videos on those subjects or visit my website at charlesguinn.com for complete details. Because this open-end type of reverse mortgage is the most useful, and it has a variable interest rate, you should know the secret of variable interest rates. So here is the secret that even lenders seldom explain to their borrowers. Variable interest rates have a fixed portion.
Yes I said that part of a variable interest rate is fixed and doesn’t change for the life of the loan. That fixed part is called the Margin. The whole rate does not vary. And in today’s financial market, only a small portion of the rate varies. So here is how variable rates actually work. This may seem complicated, but taken is small parts it is easy to understand.
The variable rate is composed of two parts – the index and the margin. The index is an internationally published rate, and it varies according to the financial markets. The margin is a fixed amount that never changes for the entire time you have a loan, and it is added to the index amount. These two together make the loan interest rate.
The Home Equity Conversion Mortgage was designed to help people with certain financial needs and goals. Correctly applied it can help you have a place to live for the rest of your life, but if used the wrong way, it can be devastating. So I would like to leave you with one thought – Don’t get financial products like investments, insurance, and mortgage loans on the internet or over the phone from an 800 number phone salesman. Make sure you know the qualified professional you are dealing with. Where they are located. How to contact them after the loan closes.
And, know that they are dedicated to doing what’s in your best interests. That should include telling you not to get a reverse mortgage if it is not the right thing for you. For more information on this topic or anything to do with Aging in Place, Social Security Maximization Planning, or reverse mortgages, please visit my website at charlesguinn.com
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