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.
But since lenders in reverse mortgage backed securities are wanting more payoff than ever, people in the mortgage industry are beginning to think twice about this.
Rough 14 months ago the margin banks and investors in mortgage backed securities needed was one percent. Margin is simply the profit in the loan.
To help you understand in a real life example. Let's say a year ago a borrower used an ARM with it's index equaling 1%. The lender adds on 1% for its margin. Add the two together and you arrive at an actual interest rate of two percent.
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 won't get into a litany of reasons why the adjustable is a better all around reverse mortgage than the fixed. It is, but certain circumstances make the fixed more attractive right now.
For example, when a senior borrower closes on the reverse mortgage, he has the option of taking as much or little of his allotment as he chooses. What if he takes a lot?
What if the borrower had the choice of taking a large lump sum like $150,000. The lender gives the choice of taking any denomination. What if the borrower takes it all. In this case the fixed may be better because it's about the same as the average on the adjustable with the new higher margins.
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.
Another thing is the amount of money a reverse mortgage lender would lend to a borrower using an adjustable rather than a fixed was more pronounced than it is today.
Formerly, the adjustable gave the senior much more money. No longer. It's almost a wash now. With the new higher margins the fixed might even get the borrower more than the adjustable.
The fixed rate was the ugly sister in reverse mortgages. This is changing. - 15224
But since lenders in reverse mortgage backed securities are wanting more payoff than ever, people in the mortgage industry are beginning to think twice about this.
Rough 14 months ago the margin banks and investors in mortgage backed securities needed was one percent. Margin is simply the profit in the loan.
To help you understand in a real life example. Let's say a year ago a borrower used an ARM with it's index equaling 1%. The lender adds on 1% for its margin. Add the two together and you arrive at an actual interest rate of two percent.
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 won't get into a litany of reasons why the adjustable is a better all around reverse mortgage than the fixed. It is, but certain circumstances make the fixed more attractive right now.
For example, when a senior borrower closes on the reverse mortgage, he has the option of taking as much or little of his allotment as he chooses. What if he takes a lot?
What if the borrower had the choice of taking a large lump sum like $150,000. The lender gives the choice of taking any denomination. What if the borrower takes it all. In this case the fixed may be better because it's about the same as the average on the adjustable with the new higher margins.
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.
Another thing is the amount of money a reverse mortgage lender would lend to a borrower using an adjustable rather than a fixed was more pronounced than it is today.
Formerly, the adjustable gave the senior much more money. No longer. It's almost a wash now. With the new higher margins the fixed might even get the borrower more than the adjustable.
The fixed rate was the ugly sister in reverse mortgages. This is changing. - 15224
