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.
That opinion is changing as the investors in Reverse mortgage backed securities continue to clamor for more and more profit out of these loans.
One year ago, the margin that banks and their investors wanted was roughly one percent. The margin is loan's profit tacked on to whatever index is used as a basis for the loan.
So, if the borrower went with the LIBOR index which may be 1%, and the former margin was 1%, the interest rate would equal the index plus the margin (1% + 1% = 2%).
What's changed over the last year is this margin. By April of last year margins went to 1.5%. In the fall they upped again to 1.75%.
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.
For example, when a senior borrower closes on the reverse mortgage, he has the option of taking as much or little of his allotment as he chooses. What if he takes a lot?
What if the borrower had the choice of taking a large lump sum like $150,000. The lender gives the choice of taking any denomination. What if the borrower takes it all. In this case the fixed may be better because it's about the same as the average on the adjustable with the new higher margins.
Although the adjustable is still extremely low right now one can expect it to go up in the coming years. We can't expect these low rates to continue.
The adjustable rate mortgage formerly had a big spread between it and the fixed rate in terms of how much money a lender would lend.
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'll have to see, but the adjustable has lost a bunch of its punch.
That opinion is changing as the investors in Reverse mortgage backed securities continue to clamor for more and more profit out of these loans.
One year ago, the margin that banks and their investors wanted was roughly one percent. The margin is loan's profit tacked on to whatever index is used as a basis for the loan.
So, if the borrower went with the LIBOR index which may be 1%, and the former margin was 1%, the interest rate would equal the index plus the margin (1% + 1% = 2%).
What's changed over the last year is this margin. By April of last year margins went to 1.5%. In the fall they upped again to 1.75%.
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.
For example, when a senior borrower closes on the reverse mortgage, he has the option of taking as much or little of his allotment as he chooses. What if he takes a lot?
What if the borrower had the choice of taking a large lump sum like $150,000. The lender gives the choice of taking any denomination. What if the borrower takes it all. In this case the fixed may be better because it's about the same as the average on the adjustable with the new higher margins.
Although the adjustable is still extremely low right now one can expect it to go up in the coming years. We can't expect these low rates to continue.
The adjustable rate mortgage formerly had a big spread between it and the fixed rate in terms of how much money a lender would lend.
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'll have to see, but the adjustable has lost a bunch of its punch.
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