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Thursday, January 8, 2009
Most reverse mortgage customers choose to work with a line of credit. They do this for multiple reasons, but that is for another article.
The reason for this article is to let you know about the margin increase taking place (within 7 days) in the reverse mortgage industry. This increase will be by at least .5%
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.
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.
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 effects on borrowers will be fairly limited. We've had the good fortune of rates being so low they are below the FHA floor rate which determines how much money a borrower may cash out.
Rates are tied to how much a borrower can borrow. When rates are higher they get less. And vice versa. Well, when they hit a certain low rate (FHA floor), any rate below that will not get the borrower more money.
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.
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.
The reason for this article is to let you know about the margin increase taking place (within 7 days) in the reverse mortgage industry. This increase will be by at least .5%
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.
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.
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 effects on borrowers will be fairly limited. We've had the good fortune of rates being so low they are below the FHA floor rate which determines how much money a borrower may cash out.
Rates are tied to how much a borrower can borrow. When rates are higher they get less. And vice versa. Well, when they hit a certain low rate (FHA floor), any rate below that will not get the borrower more money.
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.
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.
About the Author:
Surf on to the California website hitting the several hugh blundersto make when getting a reverse mortgage. An additional site covering twenty top queries regarding a California reverse mortgage is right here
posted by Credit Counseling at
5:43 PM
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