Rate Increases for Reverse Mortgage - It's Affects
We keep hearing about a continuous drop in interest rates as the Fed desperately tries to keep liquidity in the marketplace.
Tons of senior borrowers call me daily asking about the lower interest rates. Some of them are currently in escrow and they want to know how the lower rate changes things for them.
Imagine their surprise when I let them know rates have actually gone up.
It is true interest rates are extremely low. The main index used for reverse mortgage adjustable rate products is now down to .45%. However, there are more things at work here.
The part not talked about on the news is that investors in reverse mortgage backed securities are backing off purchasing these securities.
You gotta have people investing or the whole deal goes caput. So, profit margins increased by one percent in the last week.
The former margin was set at 1.75%. Currently at 2.75% and probably going up. That is a 36% increase.
How this will affect people is two fold. The first is equity will be stripped away more quickly once the indexes increase to normal levels.
The other affect is a lower loan size.
People receive less money when rates are higher for the very reason that equity is stripped away more quickly.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
The worst possible scenario for those investing in reverse mortgages is to have loan amount which is greater than the actual value of the property.
The lender is stuck in this case. All they can get out of the loan, at that time, is the sale price minus closing costs. The law prohibits any more.
Reverse mortgage borrowers planning on closing in the next thirty days will be getting some bad news from their lender. They've already been assured about how much money they will get.
A good number of these people are in difficult financial positions and are attempting to pay off their forward mortgage with a reverse. This may not happen now.
We'll see how this plays out, but it's pretty tough right now.
Tons of senior borrowers call me daily asking about the lower interest rates. Some of them are currently in escrow and they want to know how the lower rate changes things for them.
Imagine their surprise when I let them know rates have actually gone up.
It is true interest rates are extremely low. The main index used for reverse mortgage adjustable rate products is now down to .45%. However, there are more things at work here.
The part not talked about on the news is that investors in reverse mortgage backed securities are backing off purchasing these securities.
You gotta have people investing or the whole deal goes caput. So, profit margins increased by one percent in the last week.
The former margin was set at 1.75%. Currently at 2.75% and probably going up. That is a 36% increase.
How this will affect people is two fold. The first is equity will be stripped away more quickly once the indexes increase to normal levels.
The other affect is a lower loan size.
People receive less money when rates are higher for the very reason that equity is stripped away more quickly.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
The worst possible scenario for those investing in reverse mortgages is to have loan amount which is greater than the actual value of the property.
The lender is stuck in this case. All they can get out of the loan, at that time, is the sale price minus closing costs. The law prohibits any more.
Reverse mortgage borrowers planning on closing in the next thirty days will be getting some bad news from their lender. They've already been assured about how much money they will get.
A good number of these people are in difficult financial positions and are attempting to pay off their forward mortgage with a reverse. This may not happen now.
We'll see how this plays out, but it's pretty tough right now.
posted by Debt Consolidation Loan at
7:54 AM
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