Fixed-Rate Reverse Mortgages

A fixed rate sounds safest, and for some people it is. But on a reverse mortgage, fixed comes with one big tradeoff, and you should know about it before you decide.

The short version

• Your rate never changes. That's the good part.
• You get one lump sum at closing. No line of credit, no monthly payouts, no coming back for more.
• HUD limits what you can take at closing, and on a fixed-rate loan, anything you can't take at closing is generally gone for good.
• Interest starts on the full amount right away, so the balance grows faster than if you drew only what you needed.
• It fits when you need nearly all the money now: a big mortgage payoff, a home purchase, or a specific large need.
• There are no required monthly mortgage payments. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms.

How a fixed-rate HECM works

Your interest rate is set when the loan is priced and never moves. On our rates page, you'll see an APR next to each fixed-rate option. Fixed-rate loans are the only HECMs with an APR, because the rate can't change.

The catch is how you receive your money. Under HUD's rules, a fixed-rate HECM pays out as a single lump sum at closing. That's the only payout option. You can't set up a line of credit, you can't take monthly payouts, and you can't change your plan later.

On a fixed-rate HECM, your expected rate is simply your fixed rate. Like any HECM, a higher rate means a smaller principal limit, so the rate affects how much you can get, not just what you pay.

The first-year limit, and why it matters most on fixed

Every HECM has a first-year limit. You can take the greater of:

• 60 percent of your principal limit, or
• Your mandatory obligations plus 10 percent of your principal limit. Mandatory obligations include paying off your existing mortgage, closing costs, and certain set-asides.

On an adjustable HECM, the rest of your principal limit opens up after the first 12 months, and it keeps growing.

On a fixed-rate HECM, the whole loan happens at closing. So if HUD's limit says you can take less than your full principal limit, the difference is generally just left behind. You can't come back for it in year two.

An example, in words

Picture two homeowners with the same age, the same home value, and no mortgage.

• The first picks a fixed rate. With no mortgage to pay off, they're limited to 60 percent of their principal limit at closing. They take it, and that's the whole loan. The other 40 percent is never available.
• The second picks an adjustable rate with a line of credit. They can take up to 60 percent in year one, and the rest opens up after 12 months. Whatever they don't use keeps growing.

Now picture a third homeowner with a large mortgage that uses most of the principal limit. Their mandatory obligations push their first-year limit up close to the full amount. For them, fixed loses very little, and the certainty of a fixed rate may be worth it.

That's the whole story of fixed versus adjustable in three people. For a deeper comparison, read Comparing Fixed and Adjustable Reverse Mortgages.

When a fixed rate fits

A fixed-rate HECM often makes sense when:

• You're paying off a large mortgage that uses most of your available money.
• You're buying a home with a HECM for Purchase and putting the loan toward the price.
• You have one big, specific need, like a buyout in a divorce. See Divorce After 60.
• You value certainty above flexibility, and you understand what you're giving up.

When an adjustable rate usually fits better

An adjustable-rate HECM is usually better when:

• You don't need all the money now. You pay interest only on what you draw.
• You want a safety net. The unused line of credit grows and can't be frozen while you meet the terms. See the standby line of credit strategy.
• You want monthly income. Tenure or term payouts are only available on adjustable loans.
• Your home is paid off or nearly so. The first-year limit would leave money behind on a fixed loan.

Adjustable rates have caps that limit how far the rate can move. And a rate change never creates a monthly mortgage payment. It changes how fast the balance grows. See Today's Reverse Mortgage Rates.

What you give up with fixed

Let me be plain about the tradeoffs:

1. Money you can't take later. Anything above the first-year limit is generally lost.
2. No growing line of credit. The line of credit growth that makes adjustable HECMs so useful doesn't exist on a fixed loan.
3. Interest on everything, from day one. Because you take it all at once, interest and mortgage insurance build on the full amount.
4. No payout changes. You can't switch to monthly payouts or a line of credit later.

What you get in return is a rate that never changes. For the right person, that's a fair trade.

A little history

Fixed-rate HECMs used to be much more popular. Before 2013, many borrowers took a full draw of their entire principal limit at a fixed rate, and some ran through the money quickly. HUD responded: it ended the full-draw fixed-rate Standard in April 2013, then added the first-year limit that September. See HECM Program Changes by Year.

What about jumbo fixed-rate loans?

Many proprietary (jumbo) reverse mortgages are fixed-rate lump sums too. They follow their own rules, not HUD's first-year limit, so the math can work differently on a high-value home. In Washington, proprietary programs don't offer a line of credit at all. The jumbo programs we compare include Mutual of Omaha Secure Equity, Finance of America HomeSafe, Longbridge Platinum, Smartfi Choice, Nationwide Equities EquityPower, and MCM Holdings MCM Edge. See Proprietary (Jumbo) Reverse Mortgages.

Where people get tripped up

• Picking fixed before seeing the numbers. Ask for both. The difference can be large.
• Thinking fixed means lower cost. A fixed rate isn't automatically lower, and the full draw means interest on more money.
• Forgetting about the money left behind. On a paid-off home, fixed can leave a big chunk unused.
• Assuming they can switch later. You can refinance, but that has costs.

Common questions

Can I get a line of credit with a fixed-rate reverse mortgage?

Not on a HECM. A fixed-rate HECM is a single lump sum at closing.

Can I take monthly payments with a fixed rate?

No. Monthly payouts are only available on adjustable HECMs.

Can I take more money later on a fixed-rate HECM?

Generally no. Anything you couldn't take at closing isn't available later. If your home's value rises, a HECM refinance may be an option. See Reverse Mortgage Refinance.

Is a fixed-rate reverse mortgage safer?

Your rate can't rise, which is real peace of mind. But "safer" depends on what you need. An adjustable HECM's growing line of credit can be a bigger safety net.

Do I have to make payments on a fixed-rate HECM?

No. There are no required monthly mortgage payments. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms. You can make voluntary payments to lower your balance.

Why does the rate table show an APR only for fixed-rate loans?

Because a fixed rate doesn't change, its APR can be calculated. Adjustable HECMs don't have a fixed APR.

Should I choose fixed if I'm buying a home?

Often, yes, because a purchase uses most of the money at closing anyway. I'll show you both options on your purchase.

Next step

The best way to decide is to see both side by side with your real numbers. Get My Estimate, or call us at 530-888-6000 and I'll price fixed and adjustable for you.

Related reading: HECM Reverse Mortgage, How a Reverse Mortgage Works, and Reverse Mortgage Costs.

Sources

• 24 CFR Part 206 (payment plans 206.19, disbursement limits 206.25, payment changes 206.26): ecfr.gov
• "HECM Math," National Reverse Mortgage Lenders Association, 2024: nrmlaonline.org
• HUD, FHA Reverse Mortgage for Seniors (HECM): hud.gov
• Consumer Financial Protection Bureau, reverse mortgages: consumerfinance.gov