Reverse Mortgage Margins on LOC Going Up This Week
When seniors decide to go with a reverse mortgage, the majority pick the credit-line option. There are several motives for this, but we'll tackle that another time.
The point here is to inform you that, industry wide, the margins reverse mortgage companies charge will go up this week by, at the very minimum, 1/2 percent.
Perhaps you aren't clear on what a margin is? Well, allow me to inform. The banks and their investors charge a percentage inside the interest rate as their profit. This is margin.
For example, most borrowers, in the reverse mortgage arena, were moving forward with the constant maturity treasury based line of credit. The constant maturity treasury is simply an index or basis for the loan.
A couple of days ago the lender's marginal charge (banks profit) was 1.75%. The constant maturity treasury index rested at a .40%, the total of these is 2.15%. This would be the real rate of interest on the loan.
We received word yesterday that Fannie Mae, the body securitizing these loans on the secondary market, has indicated this margin is going up a minimum of 1/2%.
The effects on borrowers will be fairly limited. We've had the good fortune of rates being so low they are below the FHA floor rate which determines how much money a borrower may cash out.
How much a senior is loaned and interest go hand in hand. A loan will be higher if the interest is lower. It goes the other way as well until the ground FHA rate is reached. Then any interest rate less than that rate will not make the loan higher.
Fortunately, we are well below that rate, and for most borrowers the increase in margin won't put them up above the floor. What that means is the borrowed amount they were quoted last week will still be good this week.
What the margin increase will do is eat into equity a little faster. This is one of the downsides to the reverse mortgage. The up side is the borrower doesn't have to make payments.
Interest is eating away equity, and that is the negative aspect. Due to the marginal increase, it will deduct from it a little more rapidly than before.
The point here is to inform you that, industry wide, the margins reverse mortgage companies charge will go up this week by, at the very minimum, 1/2 percent.
Perhaps you aren't clear on what a margin is? Well, allow me to inform. The banks and their investors charge a percentage inside the interest rate as their profit. This is margin.
For example, most borrowers, in the reverse mortgage arena, were moving forward with the constant maturity treasury based line of credit. The constant maturity treasury is simply an index or basis for the loan.
A couple of days ago the lender's marginal charge (banks profit) was 1.75%. The constant maturity treasury index rested at a .40%, the total of these is 2.15%. This would be the real rate of interest on the loan.
We received word yesterday that Fannie Mae, the body securitizing these loans on the secondary market, has indicated this margin is going up a minimum of 1/2%.
The effects on borrowers will be fairly limited. We've had the good fortune of rates being so low they are below the FHA floor rate which determines how much money a borrower may cash out.
How much a senior is loaned and interest go hand in hand. A loan will be higher if the interest is lower. It goes the other way as well until the ground FHA rate is reached. Then any interest rate less than that rate will not make the loan higher.
Fortunately, we are well below that rate, and for most borrowers the increase in margin won't put them up above the floor. What that means is the borrowed amount they were quoted last week will still be good this week.
What the margin increase will do is eat into equity a little faster. This is one of the downsides to the reverse mortgage. The up side is the borrower doesn't have to make payments.
Interest is eating away equity, and that is the negative aspect. Due to the marginal increase, it will deduct from it a little more rapidly than before.
About the Author:
Surf on to the California spot going over five monster mistakes regarding the reverse mortgage. An additional site covering twenty top queries regarding a California reverse mortgage is right here
posted by Credit Counseling at
5:32 PM
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