For Many Reverse Customers the Fixed Rate May Now Be the Choice
If you were to ask me one year ago which choice for senior borrowers was the better one, between the fixed rate and the adjustable, I would have told you the adjustable with few exceptions.
That opinion is changing as the investors in Reverse mortgage backed securities continue to clamor for more and more profit out of these loans.
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.
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%).
Well, margins have been quickly changing. They went to 1.5% by the spring of last year, and changed to 1.75 about 3 months ago.
What do you know, Fannie Mae just informed us a new price change is coming. The margin is expected to rise at least 1/2 point in the coming days.
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.
One example is if the borrower cashes out all or the vast majority of the total a possible loan immediately.
If the lender is willing to lend $100,000, if the borrower needed all of it immediately the fixed may be a better choice. The reason is, with the new margin increase, the average 15 year interest rate for the adjustable is now higher than current fixed rate.
Yes, it is true that the ARM is at an unbelievably low point right now, but we're realists and we know this sucker is going up sooner or later.
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 formerly gave a prospective borrower a bunch more cash than the fixed. Not so much now. And who knows, with the new margins, perhaps the fixed will offer more.
The fixed rate was the ugly sister in reverse mortgages. This is changing.
That opinion is changing as the investors in Reverse mortgage backed securities continue to clamor for more and more profit out of these loans.
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.
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%).
Well, margins have been quickly changing. They went to 1.5% by the spring of last year, and changed to 1.75 about 3 months ago.
What do you know, Fannie Mae just informed us a new price change is coming. The margin is expected to rise at least 1/2 point in the coming days.
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.
One example is if the borrower cashes out all or the vast majority of the total a possible loan immediately.
If the lender is willing to lend $100,000, if the borrower needed all of it immediately the fixed may be a better choice. The reason is, with the new margin increase, the average 15 year interest rate for the adjustable is now higher than current fixed rate.
Yes, it is true that the ARM is at an unbelievably low point right now, but we're realists and we know this sucker is going up sooner or later.
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 formerly gave a prospective borrower a bunch more cash than the fixed. Not so much now. And who knows, with the new margins, perhaps the fixed will offer more.
The fixed rate was the ugly sister in reverse mortgages. This is changing.
posted by Credit Counseling at
7:46 PM
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