When going forward with a reverse mortgage the borrower has multiple options. The line of credit is, by far, the number one option and for good reason.
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.
You may be asking what is the margin? Glad you asked. The margin is the profit the bank or more particularly the banks investors charges on the loan.
For example, most borrowers, in the reverse mortgage arena, were moving forward with the constant maturity treasury based line of credit. The constant maturity treasury is simply an index or 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.
We received word yesterday that Fannie Mae, the body securitizing these loans on the secondary market, has indicated this margin is going up a minimum of 1/2%.
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. - 15224
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.
You may be asking what is the margin? Glad you asked. The margin is the profit the bank or more particularly the banks investors charges on the loan.
For example, most borrowers, in the reverse mortgage arena, were moving forward with the constant maturity treasury based line of credit. The constant maturity treasury is simply an index or 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.
We received word yesterday that Fannie Mae, the body securitizing these loans on the secondary market, has indicated this margin is going up a minimum of 1/2%.
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. - 15224
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