How does the credit line growth feature work on a reverse mortgage? Are interest rates affected by credit line growth? What if I want a fixed rate plan?
When you have a reverse mortgage that you set up as a credit line, you can accumulate interest on the unused amount of the credit line. For instance, if you still have 100k left in your credit line that you have not used, you will be able to draw interest on that amount. The unused amount will grow at the same rate that the interest is being charged on the used portion.
Are interest rates affected by credit line growth?
You can only get a credit line reverse mortgage if you accept a variable interest rate. Because a variable interest rate changes with the market, so will your interest earnings. Variable interest rates are determined, generally, monthly. You will need to verify with your reverse mortgage lender how their interest rates work for your particular reverse mortgage. Interest rates will always be based on the current market structure.
What if I want a fixed rate plan?
You can get a fixed interest rate reverse mortgage, but you must take the payout in a lump sum. You can’t get a fixed rate reverse mortgage on a line of credit. If you take a lump sum payout, you will not be able to earn interest on any of the money you have not used through the reverse mortgage program. However, if you take a lump sum payout and place the money into an interest bearing account, you can still make interest off the transaction. Lump sum payouts have ramifications to income guidelines when partaking in other government sponsored programs. A person should weigh in all the different aspects prior to deciding on what type of reverse mortgage to get.
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