A reverse mortgage allows older homeowners to tap into a portion of their home equity as cash — either a lump-sum payment, monthly payments, or a line of credit. As with any mortgage, the lender charges interest — and reverse mortgage interest rates tend to be higher than those on a typical home loan. There are also fees involved.
Most lenders offer a reverse mortgage only to those age 62 or older, although a few companies permit those 55 and over to obtain one. This type of mortgage can be useful for retired seniors who need additional income to cover rising medical costs, home renovations, debt consolidation, and general living expenses. But what is the interest rate on a reverse mortgage? We’ll explore current rates and how they work below.
Comparing Current Interest Rates for Reverse Mortgages
Reverse mortgage rates can be either fixed or adjustable, and available rates change frequently. The table below shows reverse mortgage interest rates for the most common type of reverse mortgage — a home equity conversion mortgage (HECM) — as of June 7, 2024. During that week, the average rate on a 30-year fixed rate home loan was 6.95%.
| HECM Fixed Rate | HECM Adjustable Rate | |
|---|---|---|
| Current interest rates | 7.560% to 7.930% | 6.950% to 7.700% |
| Annual percentage rate (APR) | 9.080% to 9.502% | N/A |
| Margin | N/A | 1.750 to 2.500 |
| Lending Limit | $1,149,825 | $1,149,825 |
Sources: All Reverse Mortgage, Inc. and MLS Reverse Mortgage
The margin is the number of percentage points added to the interest rate by the lender to set the interest rate you will pay on an adjustable-rate mortgage after the initial rate period ends. The margin is set and shouldn’t change after closing.
What Is a Reverse Mortgage?
To understand whether a reverse mortgage, with its higher interest rate, is right for you, it helps to understand how exactly reverse mortgages work. A reverse mortgage is a type of loan available specifically to homeowners (usually those 62 or older) who have built up significant equity in their property. They can access that equity as a lump sum, monthly payments, or line of credit and use it for various purposes, like funding expenses in retirement, renovating their home, or paying down debt. For older Americans, it’s an alternative to another type of loan, such as a home equity line of credit or a personal loan.
Reverse mortgages have several fees, including mortgage insurance premiums, an origination fee, a servicing fee, third-party charges (appraisal, title search, etc.), and of course interest.
Recommended: Can a Reverse Mortgage Take Your Home?
Types of Reverse Mortgages
There are two main types of reverse mortgages: federally overseen HECMs and proprietary reverse mortgages. Most homeowners will get an HECM when applying for a reverse mortgage.
Home Equity Conversion Mortgage (HECM)
An HECM is a reverse mortgage that is governed by the Department of Housing and Urban Development (HUD). These reverse mortgages are only available through private lenders approved by the Federal Housing Administration (FHA). Borrowers must go through counseling before getting approved for the loan; the HECM counselor will discuss eligibility, risks, and how the reverse mortgage works. HECMs have a borrowing limit. For 2024, it is capped at $1,149,825.
Proprietary Reverse Mortgage
If your home appraisal exceeds the HUD limit for HECMs, you’re not out of luck. Instead, you can look for a proprietary reverse mortgage. However, you can generally only get a proprietary reverse mortgage as a lump sum. In addition, loan costs are usually higher — as are the interest rates. And because proprietary mortgages aren’t federally insured, lenders typically limit loan amounts to a smaller percentage of the value of your property.
How Reverse Mortgages Work
To get an HECM reverse mortgage, you must:
• Be 62 or older
• Have significant equity in your home (or have paid it off completely)
• Go through formal counseling
• Use the home in question as a primary residence (or live in one of the units if it’s a multi-unit home)
• Have no delinquent federal debt
And as with a typical mortgage, lenders will also review your credit history, income, assets, and other financial information to determine if you qualify for the loan. The amount the lender gives you depends on the value of your home (and the equity you’ve built), your age, loan fees and interest, and how you choose to receive the money.
Unlike a traditional mortgage, borrowers don’t make payments each month. Instead, the full loan balance is due when you sell the home, move out, or pass away. (If there is more than one person on the loan, the balance is due when the last person passes away.) After the last person on the reverse mortgage dies, the estate must settle the balance due — meaning it’s possible you may not leave behind any inheritance to your loved ones.
Because you still own the home when you have a reverse mortgage, you’re responsible for paying property taxes and insurance and keeping up with maintenance. If you don’t keep up with these costs, the lender can use the loan funds to pay them or require you to repay your reverse mortgage in full.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Rate Types for Reverse Mortgages
How does interest work on a reverse mortgage? That depends on the type of rate you go with. You can either get a reverse mortgage with a fixed rate or an adjustable rate.
Fixed Rate
A fixed-rate reverse mortgage is one in which the interest rate stays constant over the life of the loan. This can make it easier to estimate how much the loan balance will grow over time, but lenders typically require you to take the payment as a lump sum when you go this route.
Adjustable Rate
Also known as a variable-rate reverse mortgage, an adjustable-rate reverse mortgage usually starts with a lower interest rate to attract borrowers, but these can change over time based on the state of the market. Rates are tied to a specific index; as that index increases or decreases, so too does the interest rate.
Factors Impacting Reverse Mortgage Rates
Several factors can impact the interest rate of a reverse mortgage, including:
• Current market rates
• The value (and location) of the home
• Your age
• How you choose to access the funds
• The market (if adjustable rate)
The Takeaway
Reverse mortgages are one way for older Americans to tap into the equity they’ve built in their homes, but there are some risks with going this route. That’s why counseling is required before getting a reverse mortgage. Costs can also be high for reverse mortgages, largely due to their interest rates. If you explore a reverse mortgage but decide it’s not for you, you can consider alternatives, such as a home equity line of credit.
SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.
FAQ
Are reverse mortgage rates higher than regular mortgages?
Reverse mortgage rates tend to be higher than regular mortgages, but a number of factors can impact the rate you get. Rates are more comparable to home equity loans and home equity lines of credit.
Can I negotiate a lower reverse mortgage rate?
You can always try to negotiate your reverse mortgage interest rate before signing. However, understand that the lender can back out until closing, just like you.
When do reverse mortgage rates adjust?
Reverse mortgage rates adjust when the index they’re tied to goes up or down. This only applies to adjustable-rate reverse mortgages. Fixed-rate reverse mortgages are constant for the duration of the loan.
Photo credit: iStock/andreswd
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