Interest Rates Increase for Reverse Mortgages
If there is no other good news at least we can pick up the news paper every morning and watch interest rates drop.
I'm getting calls from would-be reverse mortgage customers asking me how the dropping interest rates affect the amount of money a lender would lend to them.
Much to their shugrin I explain that rates have gone the other way.
Their logic is not incorrect. In actuality interest rates have come down. In fact the Constant Maturity Treasure Index is now down to point forty-four percent. The thing is this not the only factor.
The big reason rates are actually coming up is reverse mortgage investors want more profit out to these loans.
So, Fannie Mae has increased their profit margins by 1% in the last two weeks. This is not a minor change.
It's not a small increase, at least at one time. Margins have been creeping up at 1/4 point at a time.
The higher interest rate results in a couple different effects. The first being the reverse mortgage borrowers loses equity in the home that much quicker.
And secondly, would-be borrowers will receive smaller loans.
The two affects are related in the fact that the higher rates eat into the house equity more rapidly.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
How mortgage companies go out of business, as we know from recent financial trouble, is when more is owed than the home is actually worth.
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.
Who this rate increase will effect most dramatically are those currently in escrow who have already been told how much money they will receive with the former low rates.
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.
I'm getting calls from would-be reverse mortgage customers asking me how the dropping interest rates affect the amount of money a lender would lend to them.
Much to their shugrin I explain that rates have gone the other way.
Their logic is not incorrect. In actuality interest rates have come down. In fact the Constant Maturity Treasure Index is now down to point forty-four percent. The thing is this not the only factor.
The big reason rates are actually coming up is reverse mortgage investors want more profit out to these loans.
So, Fannie Mae has increased their profit margins by 1% in the last two weeks. This is not a minor change.
It's not a small increase, at least at one time. Margins have been creeping up at 1/4 point at a time.
The higher interest rate results in a couple different effects. The first being the reverse mortgage borrowers loses equity in the home that much quicker.
And secondly, would-be borrowers will receive smaller loans.
The two affects are related in the fact that the higher rates eat into the house equity more rapidly.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
How mortgage companies go out of business, as we know from recent financial trouble, is when more is owed than the home is actually worth.
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.
Who this rate increase will effect most dramatically are those currently in escrow who have already been told how much money they will receive with the former low rates.
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 Credit Counseling at
8:05 AM
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