Fannie Mae Bumps Rates for Reverse Mortgage by Week's End
Most reverse mortgage customers choose to work with a line of credit. They do this for multiple reasons, but that is for another article.
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 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.
Lenders were sent notice just yesterday that Fannie Mae (a group that backs loans on the secondary market) has bumped up the margin .5 percent at the least.
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.
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.
The downside is interest is accruing against the equity of the home. The higher margins will simply make that interest accrue a little quicker.
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 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.
Lenders were sent notice just yesterday that Fannie Mae (a group that backs loans on the secondary market) has bumped up the margin .5 percent at the least.
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.
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.
The downside is interest is accruing against the equity of the home. The higher margins will simply make that interest accrue a little quicker.
About the Author:
Scooter to a strong guide covering a bunch of mistakes people make when getting a California reverse mortgage. An additional site covering 20 popular questions about the California reverse mortgage is right here
posted by Credit Counseling at
5:52 PM
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