Reverse Mortgage Rates

Fixed Rate vs. Adjustable Rate: What Each One Means

The first choice on a Home Equity Conversion Mortgage, or HECM (the federally insured reverse mortgage), is the kind of rate. The choice reaches further than it first appears, because it shapes how the money can be paid out.

Federal law lets the borrower choose among payment methods. Under 12 U.S.C. § 1715z-20(d)(9), payments may be made:

"(A) based upon a line of credit; (B) on a monthly basis over a term specified by the mortgagor; (C) on a monthly basis over a term specified by the mortgagor and based upon a line of credit; (D) on a monthly basis over the tenure of the mortgagor; (E) on a monthly basis over the tenure of the mortgagor and based upon a line of credit; or (F) on any other basis that the Secretary considers appropriate."

The same statute generally allows a borrower to switch payment methods later, "except that in the case of a fixed rate mortgage, the Secretary may, by regulation, limit such convertibility" (12 U.S.C. § 1715z-20(d)(10)).

Fixed rate. The rate stays the same for the life of the loan. On a HECM it is paired with a single lump-sum payout at closing.

Adjustable rate. The rate can change over time. It is the type paired with a line of credit, monthly payments, or a combination of the two.

So the rate type limits the payment choice: a borrower who wants a line of credit does not use a fixed rate.

An adjustable-rate line of credit also has a growth feature. The unused part of the line grows over time at the same rate the loan charges, so more becomes available later if the borrower does not draw it all early. Money that is drawn starts adding interest to the balance.

The Two Parts That Make Up an Adjustable Reverse Mortgage Rate

An adjustable rate looks like one number, but it is built from two parts.

The index. An index is an outside benchmark rate that rises and falls with financial markets. The lender does not control it. On adjustable-rate HECMs, HUD selects which index may be used; when an older index expired in 2023, HUD's program page states that the Secretary selected the CME Term SOFR index to replace it (HUD, Home Equity Conversion Mortgages for Seniors).

The margin. The margin is a fixed percentage the lender adds on top of the index. It is set when the loan is made and does not change.

The rate the borrower is charged equals the index plus the margin. When the index moves, the rate moves with it; the margin stays put.

How often it adjusts. Some adjustable HECM rates adjust monthly and others annually. The loan documents state which one applies.

Rate caps. A cap is a limit on how far the rate can rise. Adjustable HECM rates carry a periodic cap, limiting the rise in any one adjustment period, and a lifetime cap, limiting the rise over the whole loan. The actual cap figures appear in the loan's disclosures.

Index values are public, and the lender discloses the margin and the caps before closing. That disclosure is the place a family can see each piece written down.

How the Rate Affects How Much a Borrower Can Receive

Families are often surprised to learn that the rate affects not only what is owed later but also what may be available at the start.

The amount a borrower may access at the start is called the principal limit. It is the most that can be drawn under the loan's terms, subject to lender approval. HUD states that the amount available for withdrawal "varies by borrower" and depends on factors including the "age of the youngest borrower or eligible non-borrowing spouse" and the "lesser of appraised value or the HECM FHA mortgage limit or the sales price" (HUD). That FHA limit is also called the maximum claim amount, and HUD publishes the current figure.

The rate enters through the expected rate. The expected rate is a projected long-term rate used in the calculation. It is not the rate that accrues on the balance day to day.

A higher expected rate generally lowers the principal limit. The math projects that the balance will grow faster, which leaves less equity as a cushion, so less is made available up front.

Age matters too. Under 24 C.F.R. § 206.33, "the youngest borrower shall be 62 years of age or older at the time of loan closing." Rate, age and home value work together; none decides the amount alone. A lender's figure is an estimate under that lender's terms, and it is not a promise until the loan is approved and closed. The basic reverse mortgage eligibility rules sit alongside these inputs.

Other Costs That Grow Alongside the Rate

A family looking only at the interest rate can underestimate how fast the balance grows. Other charges are added to the same balance.

Annual mortgage insurance premium (MIP). On a HECM, a yearly mortgage insurance premium is charged and added to the balance. This insurance backs the federal program; it is not insurance on the house. HUD sets the rate and publishes it.

Origination fee. This is a one-time charge at closing for making the loan. Federal rules limit the origination fee, the statute provides that it "may be fully financed with the mortgage" (12 U.S.C. § 1715z-20(r)(3)), and the lender discloses the amount.

Servicing fees. Some loans carry a monthly servicing fee for statements, paying out funds and tracking the loan's requirements. The loan documents state whether one applies.

Closing costs paid to third parties, such as an appraisal and title search, also appear upfront (CFPB, How much does a reverse mortgage loan cost?).

Because interest, insurance and fees are all added to the balance, and interest then runs on that larger balance, the balance grows faster than the stated interest rate alone suggests. The CFPB notes that "the larger your loan balance and the longer you keep your loan, the more you pay in ongoing costs." Since the loan generally runs until the last borrower dies, sells or moves out, time is part of the cost.

What to Ask a Lender About the Rate Before Signing

Sitting across from a loan officer, it can be hard to know which questions open up the numbers. These questions focus on the rate:

• What is the current index, and which index does this loan use?
• What is the margin, and does it ever change?
• What are the periodic and lifetime rate caps?
• Does this rate adjust monthly or annually?
• What expected rate is used to calculate the principal limit?
• What is the annual MIP rate, and how is it added to the balance?
• Is there a monthly servicing fee, and where is it disclosed?

Federal law already requires some of this on paper. Before closing, the lender must provide a statement of the projected total cost of the mortgage, shown as a single average annual rate, for at least two loan terms, under 12 U.S.C. § 1715z-20(e)(4). The borrower must also receive "full disclosure" of all costs, stating clearly which charges are required to get the loan and which are not (12 U.S.C. § 1715z-20(d)(2)(C)).

Counseling comes before a HECM. The statute requires "adequate counseling" by an independent third party not tied to the lender or to the sale of other financial products (12 U.S.C. § 1715z-20(d)(2)(B)). A HUD-approved counselor can help compare these disclosures. HUD's program page offers the HECM Counselor Roster and the number (800) 569-4287 (HUD). The Federal Trade Commission adds that no borrower has to buy any other financial product to get a reverse mortgage (FTC, Reverse Mortgages).

How Reverse Mortgage Rates Compare to Other Home Equity Options

Seen side by side, the options differ less in their rates than in when the cost is paid. Each one trades something different.

Home equity loan. A lump sum at a fixed rate, repaid in monthly payments. The borrower qualifies on income and credit.

Home equity line of credit (HELOC). A line to draw from, typically at a variable rate, with monthly payments during the draw and repayment periods. The borrower qualifies on income and credit. The trade-offs are set out in reverse mortgage vs HELOC.

Cash-out refinance. The current mortgage is replaced with a larger one, and the difference is paid out. Monthly payments continue, and the borrower must qualify.

Reverse mortgage. No monthly mortgage payment is required, but interest and charges are added to the balance so it grows. The borrower must meet the age, principal-residence and property requirements, keep paying taxes and insurance and keep up the home, and the loan comes due as described above.

The CFPB also lists waiting, downsizing and lowering expenses, and points to state and local programs that help with property taxes, utilities and repairs (CFPB, Can anyone take out a reverse mortgage loan?).

The core trade-off: a reverse mortgage pushes the cost of borrowing to the end of the loan, while the others spread it across monthly payments. Neither is better for everyone. The fit depends on income, other savings, plans for the home, and what a spouse or family hopes for later. A reverse mortgage that falls behind on taxes or insurance can become due. More on what a reverse mortgage is helps frame that comparison.

Understanding where each option puts the cost of borrowing can help a family have a more grounded conversation about what fits.