When a bank makes a loan on a home in the form of a reverse mortgage, they are in effect purchasing a home over time. They are also, at the same time, “lending” money to the current home owner, so they charge interest. Some reverse mortgage lenders base their interest rates on the LIBOR standards. LIBOR, or London Inter Bank Offered Rate, is the rate that international banks charge each other to lend money on unsecured debt. The LIBOR standard trickles down to the consumer via interest charges. If LIBOR rates are low, so are the interest rates consumes pay; if they are high the consumer will pay much higher rates. Reverse mortgage holders that have their interest rates based on a LIBOR system will have fluctuating interest and may not be in the best interest of the consumer.
Do All Reverse Mortgage Holders base Their Interest Rates On The LIBOR System?
No. Reverse mortgage holders have at least three different systems to select from to base their interest rates upon. The way that the interest rate is determined by the lender is really a mute point to the borrower. The important thing the borrower needs to worry about is the interest rate they will personally be charged. Each banking or lending institution will lend money at a different rate or cost. It is up to the consumer to shop around for the best deals prior to committing to a loan. It is always in the best interest of the consumer to check with several companies before deciding to stick with one.
Are Reverse Mortgage Holders Required TO Disclose How They Calculate Their Interest Rates?
While there is no specific law stating that a reverse mortgage holder disclose how they come up with their interest figures, they must disclose their rate. Consumers must be fully aware of how the interest on their mortgage will work and at what rate they will be charged. Many contracts state how they calculate their rates, but it is not a necessity.
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