Reverse Mortgage Rates 101: What You Need to Know

Banner image
ByChristopher Boston
Edited byRae Osborn
ByChristopher Boston
Edited byRae Osborn

Updated: October 29, 2023

Advertising & Editorial Disclosure

A mortgage is a loan you might take to buy a home. There is also a reverse mortgage. Unlike a regular home loan, a reverse mortgage lets older homeowners get cash from their home's value without selling it. It's not something every lender offers, but it's becoming more available. Understanding reverse mortgage rates is a key part because it influences how much money you'll owe in the end, and knowing how they work helps you determine whether it’s a viable option for you.

Today’s Reverse Mortgage Rates

Currently, the average interest rate for reverse mortgages is 5%, but that doesn’t mean it’ll stay that way. Keeping track of reverse mortgage interest rates over time helps you see trends. If you notice rates going down, you might decide it's a good time to apply for a reverse mortgage. If they're going up, you might consider waiting. This information puts you in control, helping you make decisions that fit your financial goals.


What Is a Reverse Mortgage?

A reverse mortgage is different from a traditional mortgage, where you borrow money to buy a home and pay it back over time. This financial product lets you turn part of your home's value into cash without selling it, making it a popular choice for older homeowners or retirees who want extra income.

Repayment is also different since you usually do it in a lump sum. It is generally triggered when the last surviving borrower sells the home, moves out of the property. or passes away. If the borrower dies, the responsibility for repaying the reverse mortgage is usually that of the estate or the heirs. They can repay the loan and keep the home or sell the home and pay off the reverse mortgage. If they sell the home and the sales proceeds exceed the amount owed on the reverse mortgage, the remaining funds go to the estate or the heirs.

Current reverse mortgage rates affect how much you'll owe in the end, so it's worth knowing the rates if you're considering this option.

Types of Reverse Mortgages

Knowing that reverse mortgages come in different types helps you make the right choice. Different types might have distinct features that align with your needs and goals, affecting the rates you can get. Choosing the right reverse mortgage gives you the best rates for your situation. Here's a look at the three main types:

Best For

Single-Purpose Reverse Mortgages

Offered by some state and local government agencies or nonprofits. Used for one specific purpose, like home repairs.

Those who need funds for a specific need like home improvements.

Home Equity Conversion Mortgages (HECMs)

Insured by the federal government, and have specific requirements but can be used more freely.

Homeowners looking for flexibility and widely available options.

Proprietary Reverse Mortgages

Private loans backed by the companies that develop them. May provide higher loan amounts for high-value homes.

Those with higher-value homes seeking larger loan amounts.

Understanding these different reverse mortgage options helps you align your choice with your financial needs and aims. You’re more likely to make an informed, financially-beneficial decision by recognizing which type fits you best.

Pros and Cons of Reverse Mortgages

Although reverse mortgages can bring many benefits, such as additional income in retirement or allowing access to home equity without selling, they're not suitable for everyone. Awareness of both the advantages and risks is crucial for homeowners considering this option because it can guide you to a more informed decision that aligns with your financial goals and personal circumstances. Let's examine how reverse mortgage rates and other factors play into these pros and cons:


Additional Income: Offers extra funds for retirees, easing financial burdens.

Accruing Interest: Reverse mortgage rates can lead to interest accumulating over time, potentially reducing inheritance.

Access to Home Equity: Lets you tap into home value without selling.

High Fees: Costs such as origination fees and mortgage insurance can be high.

No Monthly Payments: No need to repay the loan until selling, moving, or death.

Impact on Public Benefits: May affect eligibility for certain government benefits like Medicaid since it may count as an asset.

Loan Protections: Federal rules provide certain protections like capped interest rates.

Decreased Home Equity: As the loan amount grows, available home equity decreases, possibly affecting future financial plans.

Non-Recourse Feature: You'll never owe more than the home's value at repayment.

Complexity: Understanding all terms and conditions can be tricky, demanding careful consideration.

While reverse mortgages offer unique opportunities, they come with particular risks and considerations. Thoroughly assessing these factors allows you to choose an option that complements your financial situation and long-term goals.

Understanding Reverse Mortgage Rates

Reverse mortgage rates represent the interest paid on borrowed funds. Higher rates cause the interest to accumulate quickly, increasing the total amount owed, while lower rates reduce the overall cost. Fluctuations can significantly impact the total repayment amount over time, so understanding reverse mortgage rates is vital for aligning decisions with financial goals.

However, interest rates affect reverse mortgages in another way — they also influence the proceeds you receive. Higher interest rates may reduce the amount you're eligible to borrow since more of the loan balance will be earmarked for future interest. Conversely, lower interest rates might mean more proceeds are available to you because less is set aside for interest. This connection between rates and proceeds emphasizes the importance of finding favorable rates when considering a reverse mortgage.

Factors Affecting Reverse Mortgage Rates

From the previous section, it's clear that reverse mortgage rates can play a crucial role in determining both the amount you owe and the proceeds you receive. But what drives these rates? Understanding the factors behind rate fluctuations empowers you to make informed decisions that align with your financial situation. Let's delve into what these factors are:

  • Economic Indicators: Economic health, inflation and Federal Reserve policies can drive interest rates. For instance, strong economic growth might lead to higher interest rates, whereas a recession might prompt lower rates.

  • Lender Policies: Lenders might have varying rates based on their policies and competitive positioning. Shopping around can help you find one that offers rates tailored to your needs.

  • Market Conditions: Housing demand, investor behavior and global economic conditions can influence rates. A high demand for mortgages might push rates higher, while a sluggish housing market might lead to lower rates.

  • Age of the Borrower: Since reverse mortgages are aimed at older homeowners, the borrower's age may affect the rate. Typically, older borrowers may receive a higher rate, which in turn affects the loan proceeds.

  • Property Value: The home's appraised value plays a crucial role in determining the rate. A higher home value might provide more favorable rates.

  • Type of Reverse Mortgage: The terms and rates for Home Equity Conversion Mortgages (HECMs), Proprietary Reverse Mortgages and Single-Purpose Reverse Mortgages might differ significantly.

  • Closing Costs and Fees: Additional costs and fees associated with a reverse mortgage could also impact the effective rate. Understanding these costs and how they fit into the overall financial picture is key to evaluating the true rate you will pay.

  • Interest Rate Type: Reverse mortgages may offer fixed or variable rates, each with its unique characteristics. Fixed rates remain constant, while variable rates can fluctuate, potentially affecting the cost over time.

Knowledge of these elements helps borrowers navigate the complexities of reverse mortgage rates, allowing them to secure the best possible terms for their unique situation. You can take control of your financial future by keeping an eye on these elements.

Securing a Reverse Mortgage

Knowing the process of securing a reverse mortgage ahead of time can be helpful for prospective borrowers. It makes the complexities manageable and allows you to approach the process with more confidence. Here's a step-by-step guide that covers the process, addresses common misunderstandings and offers practical advice.

  1. Assess Your Eligibility: Determine if you meet the criteria such as age (typically 62 or older) and equity in your home. Some people think they can't lose their homes, but understanding that defaulting on property charges can lead to foreclosure is vital.

  2. Consult a Financial Counselor: Some might think counseling is unnecessary, but seeking independent advice ensures a reverse mortgage suits your financial goals, including understanding reverse mortgage interest rates.

  3. Choose the Reverse Mortgage Type: Select between HECMs, Proprietary or Single-Purpose, based on your needs. While some believe all types are the same, comparing the best reverse mortgage rates and benefits for each type helps in making an informed choice.

  4. Submit an Application: Some find the application process excessively complicated. Completing it with the assistance of a lender and preparing the required documents in advance can ease the process.

  5. Home Appraisal: A professional will assess your property’s value. It's a misconception that all homes qualify. You may find that your home requires some maintenance and repairs before a lender approves your application.

  6. Review Loan Terms: Understanding all the terms, including interest rates and fees, is crucial. Although some might opt for the lowest interest rate, it is wiser to conside all terms and how they fit your financial plan.

  7. Close the Deal: Sign the agreement, but keep in mind the three-day right to cancel. Some think there's no backing out, but knowing your rights and considering all implications before finalizing is essential.

Although the reverse mortgage process may seem overwhelming, it is a useful financial tool if you have the right information. This way, you have a better understanding of the process, allowing you to make a decision that fits your unique financial needs and goals.

Finding the Best Reverse Mortgage Rates

Interest rates play a dual role in reverse mortgages by influencing the total amount due over time and the proceeds you receive. Finding the best rates is an important part of finding a reverse mortgage that suits your needs. Here's how you can do it:

  • Shop Around with Various Lenders: Don't settle for the first quote. Different mortgage lenders may offer different rates, so it’s wise to compare. More options mean better chances of finding a favorable rate.

  • Consider Different Loan Types and Payment Options: Various reverse mortgage products and payment plans might offer differing rates. By examining these, you can find the one that best aligns with your financial goals without being tied to a single option.

  • Negotiate the Fees and Closing Costs: Although rates might seem fixed, you may have room to negotiate other loan costs. By lowering these, you can indirectly affect the overall cost of your reverse mortgage.

  • Stay Informed About the Market Conditions: Sometimes, timing is key. Interest rates may vary due to economic conditions, so keeping an eye on trends could help you lock in a lower rate when the time is right.

  • Consult with a Reverse Mortgage Specialist: Seeking advice from a specialist can help you understand the market and guide you in finding the best deal. Their insights could lead to a more personalized and beneficial agreement.

Finding the best reverse mortgage rates is about more than just saving money — it ensures your loan complements your financial needs and future plans. These strategies can help you make more informed choices, allowing you to better manage your financial well-being.

Exploring Alternatives to Reverse Mortgages

A reverse mortgage isn't your only option if you're looking to use your home's equity. Knowing available alternatives and how they compare to reverse mortgage rates can help you make a choice that best suits your financial needs. Here's a look at some other ways to access the value of your home:

Why You Should Go For It
What Might Make You Reconsider

Home Equity Loan: A loan using your home’s equity as collateral.

Fixed interest rates; regular monthly payments.

Your home is collateral; failure to repay may result in losing your home.

Home Equity Line of Credit (HELOC): A revolving line of credit against your home’s equity.

Flexible access to funds; only pay interest on what you borrow.

Variable interest rates; risk of overspending.

Cash-Out Refinancing: Replacing your current mortgage with a new one, cashing out a portion of your home’s equity.

Access to a lump sum of cash; potential for lower interest rates.

Closing costs and fees; may extend the loan term.

Selling Your Home: Moving to a less expensive home and using the profit.

Full access to home’s value; no loan to repay.

Moving and transition costs; may need to downsize.

Each option has its unique benefits and challenges — comparing them to reverse mortgage rates and terms can help you find the path that aligns most closely with your financial goals and lifestyle.

Frequently Asked Questions

Finding the right answers to your queries about reverse mortgages can clear up confusion and help you make better financial decisions. Here are some commonly asked questions to provide additional information.

What are reverse mortgage rates?
How are reverse mortgage rates determined?
Can reverse mortgage rates change over time?
Are there different types of interest rates for reverse mortgages?
Can I lock in a reverse mortgage rate, and if so, for how long?
Are reverse mortgage interest payments tax-deductible?
What happens to my reverse mortgage rate if I decide to refinance?

About Christopher Boston

Christopher Boston headshot

Christopher (Croix) Boston was the Head of Loans content at MoneyGeek, with over five years of experience researching higher education, mortgage and personal loans.

Boston has a bachelor's degree from the Seattle Pacific University. They pride themselves in using their skills and experience to create quality content that helps people save and spend efficiently.