Fixed Rate Possibly Better than Adjustable in Reverse Biz
Suppose a borrower came to me 1 yr. ago with the question: "Should I go with the adjustable or fixed rate?" My reply in most situations would be that the adjustable rate is the way to go.
But since lenders in reverse mortgage backed securities are wanting more payoff than ever, people in the mortgage industry are beginning to think twice about this.
Rough 14 months ago the margin banks and investors in mortgage backed securities needed was one percent. Margin is simply the profit in the loan.
To give an example the borrower may have gone with an adjustable rate mortgage with an index of one percent. If the margin was an additional one percent the actual loan rate would have been 2%.
Well, margins are on the rise since this time last year. By March they went to one point five percent and by October one point seven-five percent.
Well, it's on the move again. It appears Fannie Mae is telling us preemptively that the expected margin next week will raise up about one half point next week.
I won't get into a litany of reasons why the adjustable is a better all around reverse mortgage than the fixed. It is, but certain circumstances make the fixed more attractive right now.
One example is if the borrower cashes out all or the vast majority of the total a possible loan immediately.
Let's say the lender will allow the borrower to cash out a large number like $200,000. If the seniors takes it all the fixed may be better than the ARM. The reason is the fixed rate is roughly the same as the fifteen year average for the ARM.
Right now the ARM is very attractive because it's squatting down extraordinarily low. It's teasing people, but this won't last forever and it will come up to meet the average.
One other benefit to the ARM over the fixed was that lenders were giving substantially more money on the ARM. This number is not nearly so profound today.
The ARM used to be a no brainer in terms of how much money it gave a borrower rather than the fixed. It's far closer now and one never knows. Perhaps after the change the fixed will give more.
We don't know quite yet, but the fixed rate is gaining on the ARM.
But since lenders in reverse mortgage backed securities are wanting more payoff than ever, people in the mortgage industry are beginning to think twice about this.
Rough 14 months ago the margin banks and investors in mortgage backed securities needed was one percent. Margin is simply the profit in the loan.
To give an example the borrower may have gone with an adjustable rate mortgage with an index of one percent. If the margin was an additional one percent the actual loan rate would have been 2%.
Well, margins are on the rise since this time last year. By March they went to one point five percent and by October one point seven-five percent.
Well, it's on the move again. It appears Fannie Mae is telling us preemptively that the expected margin next week will raise up about one half point next week.
I won't get into a litany of reasons why the adjustable is a better all around reverse mortgage than the fixed. It is, but certain circumstances make the fixed more attractive right now.
One example is if the borrower cashes out all or the vast majority of the total a possible loan immediately.
Let's say the lender will allow the borrower to cash out a large number like $200,000. If the seniors takes it all the fixed may be better than the ARM. The reason is the fixed rate is roughly the same as the fifteen year average for the ARM.
Right now the ARM is very attractive because it's squatting down extraordinarily low. It's teasing people, but this won't last forever and it will come up to meet the average.
One other benefit to the ARM over the fixed was that lenders were giving substantially more money on the ARM. This number is not nearly so profound today.
The ARM used to be a no brainer in terms of how much money it gave a borrower rather than the fixed. It's far closer now and one never knows. Perhaps after the change the fixed will give more.
We don't know quite yet, but the fixed rate is gaining on the ARM.
posted by Credit Counseling at
8:01 PM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home