Interest Rates Take Big Jump this Week for Reverse Mortgage
When seniors decide to go with a reverse mortgage, the majority pick the credit-line option. There are several motives for this, but we'll tackle that another time.
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.
What the heck is a margin? I was getting to that. The margin is the profit built into the loan by the bank and those that would put their money into mortgage backed securities.
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.
A couple of days ago the lender's marginal charge (banks profit) was 1.75%. The constant maturity treasury index rested at a .40%, the total of these is 2.15%. This would be the real rate of interest on the loan.
Fannie Mae (the organization who secures secondary loans) has now forewarned that the bank's margin will increase at least a half percent.
This won't necessarily hurt the borrowers profoundly. So far the rates have luckily been low enough to be under the Federal Housing Administration's lowest rate, which is what decides the amount of money that can be loaned to a borrower.
The loan amount a borrower is eligible to receive and interest rate have an inverse relationship. The reverse mortgage will be greater if the rate is low, but if the rate is so low it meets or is below the FHA floor, the senior's loan won't be increased to match it.
Fortunately, we are well below that rate, and for most borrowers the increase in margin won't put them up above the floor. What that means is the borrowed amount they were quoted last week will still be good this week.
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.
Interest is eating away equity, and that is the negative aspect. Due to the marginal increase, it will deduct from it a little more rapidly than before.
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.
What the heck is a margin? I was getting to that. The margin is the profit built into the loan by the bank and those that would put their money into mortgage backed securities.
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.
A couple of days ago the lender's marginal charge (banks profit) was 1.75%. The constant maturity treasury index rested at a .40%, the total of these is 2.15%. This would be the real rate of interest on the loan.
Fannie Mae (the organization who secures secondary loans) has now forewarned that the bank's margin will increase at least a half percent.
This won't necessarily hurt the borrowers profoundly. So far the rates have luckily been low enough to be under the Federal Housing Administration's lowest rate, which is what decides the amount of money that can be loaned to a borrower.
The loan amount a borrower is eligible to receive and interest rate have an inverse relationship. The reverse mortgage will be greater if the rate is low, but if the rate is so low it meets or is below the FHA floor, the senior's loan won't be increased to match it.
Fortunately, we are well below that rate, and for most borrowers the increase in margin won't put them up above the floor. What that means is the borrowed amount they were quoted last week will still be good this week.
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.
Interest is eating away equity, and that is the negative aspect. Due to the marginal increase, it will deduct from it a little more rapidly than before.
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Surf on to the California spot going over five monster mistakes regarding the reverse mortgage. An additional site covering tons of the most popular inquiries regarding a California reverse mortgage is right here
posted by Credit Counseling at
5:58 PM
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