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.
The point here is to inform you that, industry wide, the margins reverse mortgage companies charge will go up this week by, at the very minimum, 1/2 percent.
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.
The line of credit based on the constant maturity treasury index is what almost all borrowers of a reverse mortgages were using if the went forward with a reverse mortgage with a line of credit.
The treasury index read .40 percent seven days ago, and the margin the mortgage companies charged was 1.75 percent. To find the actual rate of interest for the loan just combine these two numbers, which would equal 2.15 percent.
Fannie Mae (the organization who secures secondary loans) has now forewarned that the bank's margin will increase at least a half percent.
The borrower won't really see any huge negatives from this. Up to this point we've been blessed by interest rates being below FHA's ground rate. This rate is what is used to figure the most money a lender can allocate to the borrower.
How much a senior is loaned and interest go hand in hand. A loan will be higher if the interest is lower. It goes the other way as well until the ground FHA rate is reached. Then any interest rate less than that rate will not make the loan higher.
At current standing the floor rate is high above us. This means the marginal increase, thankfully, will not put reverse mortgage borrowers above it. So it is still fine to use a estimate given to you in the last couple weeks.
The higher marginal charge will deduct from the equity in the home more quickly. Yes, I just mentioned a negative of the reverse mortgage. But remember the senior won't be paying anyone, which is a huge plus.
So the bad news is interest is gathering against property equity. This increased marginal charge will just have it gather slightly faster.
