For Many Reverse Customers the Fixed Rate May Now Be the Choice
At this time last year, if a senior was to ask me which was a wiser option, the fixed interest rate or the one that adjusts, my response to him would (in almost all cases) have been the latter.
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.
The margin that banks and their investors needed was at approximately 1% at this time last year. Go ahead and liken the "margin" to "profit margin". It is 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.
Guess what, word around the campfire is the margins, industry wide, will raise next week. Fannie Mae is set to raise the margin at least 1/2 point.
I have another article dealing with why the adjustable rate option is so good when it comes to reverse mortgages. It still is, but the fixed rate is becoming more and more attractive as these margins rise.
Here is a thought: what if, at close of escrow, the senior takes a large lump sum when getting a reverse mortgage.
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.
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.
Another thing is the amount of money a reverse mortgage lender would lend to a borrower using an adjustable rather than a fixed was more pronounced than it is 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.
The fixed rate was the ugly sister in reverse mortgages. This is changing.
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.
The margin that banks and their investors needed was at approximately 1% at this time last year. Go ahead and liken the "margin" to "profit margin". It is 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.
Guess what, word around the campfire is the margins, industry wide, will raise next week. Fannie Mae is set to raise the margin at least 1/2 point.
I have another article dealing with why the adjustable rate option is so good when it comes to reverse mortgages. It still is, but the fixed rate is becoming more and more attractive as these margins rise.
Here is a thought: what if, at close of escrow, the senior takes a large lump sum when getting a reverse mortgage.
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.
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.
Another thing is the amount of money a reverse mortgage lender would lend to a borrower using an adjustable rather than a fixed was more pronounced than it is 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.
The fixed rate was the ugly sister in reverse mortgages. This is changing.
posted by Debt Consolidation Loan at
7:40 PM
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