Most reverse mortgage customers choose to work with a line of credit. They do this for multiple reasons, but that is for another article.
What I'm referring to here is the fact that this week, the margins charged by reverse mortgage lenders nationwide will increase a half percent or more.
You may be asking what is the margin? Glad you asked. The margin is the profit the bank or more particularly the banks investors charges on the loan.
For instance, where reverse mortgages are concerned the majority of seniors were going along with the credit line based on the constant maturity treasury. This index is the basis for the loan.
Last week the constant maturity treasury index was .40%. The margin banks were charging was 1.75%. This is the mortgage company profit. So, the actual interest rate was the margin plus the index totaling 2.15%.
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 borrower won't really see any huge negatives from this. Up to this point we've been blessed by interest rates being below FHA's ground rate. This rate is what is used to figure the most money a lender can allocate to the borrower.
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.
At current standing the floor rate is high above us. This means the marginal increase, thankfully, will not put reverse mortgage borrowers above it. So it is still fine to use a estimate given to you in the last couple weeks.
What will happen is the equity will evaporate slightly more rapidly due to the margin being raised. This isn't the best thing about a reverse loan, but not having to pay the mortgage company every month helps.
The downside is interest is accruing against the equity of the home. The higher margins will simply make that interest accrue a little quicker.
What I'm referring to here is the fact that this week, the margins charged by reverse mortgage lenders nationwide will increase a half percent or more.
You may be asking what is the margin? Glad you asked. The margin is the profit the bank or more particularly the banks investors charges on the loan.
For instance, where reverse mortgages are concerned the majority of seniors were going along with the credit line based on the constant maturity treasury. This index is the basis for the loan.
Last week the constant maturity treasury index was .40%. The margin banks were charging was 1.75%. This is the mortgage company profit. So, the actual interest rate was the margin plus the index totaling 2.15%.
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 borrower won't really see any huge negatives from this. Up to this point we've been blessed by interest rates being below FHA's ground rate. This rate is what is used to figure the most money a lender can allocate to the borrower.
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.
At current standing the floor rate is high above us. This means the marginal increase, thankfully, will not put reverse mortgage borrowers above it. So it is still fine to use a estimate given to you in the last couple weeks.
What will happen is the equity will evaporate slightly more rapidly due to the margin being raised. This isn't the best thing about a reverse loan, but not having to pay the mortgage company every month helps.
The downside is interest is accruing against the equity of the home. The higher margins will simply make that interest accrue a little quicker.
About the Author:
Scooter to a strong California website hitting the several hugh blundersto make when getting a reverse mortgage. An additional site covering tons of the most popular inquiries about the California reverse mortgage is right here
0 comments
Post a Comment