How Reverse Mortgage Rate Increase Changes Things
If all else fails in the economy at least we can turn the TV on and see how interest rate continue to decline in the Fed's effort to stimulate the economy.
Tons of senior borrowers call me daily asking about the lower interest rates. Some of them are currently in escrow and they want to know how the lower rate changes things for them.
Imagine their surprise when I let them know rates have actually gone up.
It is true interest rates are extremely low. The main index used for reverse mortgage adjustable rate products is now down to .45%. However, there are more things at work here.
The big reason rates are actually coming up is reverse mortgage investors want more profit out to these loans.
How do get people to invest? You increase profit margins, which is exactly what Fannie Mae did. They increased the margin by 1%.
To put this in direct terms reverse mortgage margins just went up thirty six percent.
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.
The second is people will qualify to receive less money.
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.
Those who will receive the biggest surprise due to the new interest rate increase are those planning on closing on their reverse mortgage in the next month.
Many of these folks are banking on being able to refinance their forward mortgage thereby dumping that big monthly payment. This may no longer be possible.
No one seems to be immune to these tough financial times.
Tons of senior borrowers call me daily asking about the lower interest rates. Some of them are currently in escrow and they want to know how the lower rate changes things for them.
Imagine their surprise when I let them know rates have actually gone up.
It is true interest rates are extremely low. The main index used for reverse mortgage adjustable rate products is now down to .45%. However, there are more things at work here.
The big reason rates are actually coming up is reverse mortgage investors want more profit out to these loans.
How do get people to invest? You increase profit margins, which is exactly what Fannie Mae did. They increased the margin by 1%.
To put this in direct terms reverse mortgage margins just went up thirty six percent.
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.
The second is people will qualify to receive less money.
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.
Those who will receive the biggest surprise due to the new interest rate increase are those planning on closing on their reverse mortgage in the next month.
Many of these folks are banking on being able to refinance their forward mortgage thereby dumping that big monthly payment. This may no longer be possible.
No one seems to be immune to these tough financial times.
posted by Credit Counseling at
7:18 AM
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