Reverse mortgages have a different structure from forward mortgages. Points on a reverse mortgage reduce the rate, but the benefit comes as a higher principal limit rather than a lower monthly payment.
The tradeoff is different: buying points on a reverse mortgage gives you access to more proceeds, but it costs you upfront. Patrick Kevin Fagan helps seniors evaluate whether reverse mortgage points make sense for their situation.
Reverse Mortgage Structure
Reverse mortgages do not require monthly payments. Instead, the loan balance grows over time as interest accrues. Points on a reverse mortgage work by reducing the interest rate, which slows the growth of the loan balance and increases the amount of equity available to the borrower. Patrick Kevin Fagan explains reverse mortgage mechanics for San Antonio area seniors.
How Points Work on Reverse
Points on a reverse mortgage reduce the accruing interest rate. This means the loan balance grows more slowly, preserving more equity for the borrower. The effect is similar to getting a higher net principal limit. However, the points are paid as closing costs, which are often financed into the loan. Patrick Kevin Fagan helps clients in San Antonio understand the full impact of points on a reverse mortgage.
Comparison with Forward Mortgages
On a forward mortgage, points reduce your monthly payment. On a reverse mortgage, points increase the amount you can receive and slow equity erosion. The break-even analysis is different because there are no monthly payments to compare. Instead, compare the point cost against the additional principal limit or reduced loan growth. Call 210-317-6514 to discuss whether reverse mortgage points fit your retirement plan.
