Rate Increases for Reverse Mortgage - It's Affects
We keep hearing about a continuous drop in interest rates as the Fed desperately tries to keep liquidity in the marketplace.
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.
I reply the rates have gone up, not down.
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 part not talked about on the news is that investors in reverse mortgage backed securities are backing off purchasing these securities.
You gotta have people investing or the whole deal goes caput. So, profit margins increased by one percent in the last week.
It's not a small increase, at least at one time. Margins have been creeping up at 1/4 point at a time.
How this will affect people is two fold. The first is equity will be stripped away more quickly once the indexes increase to normal levels.
The other affect is a lower loan size.
The very fact that higher interest rates for the reverse mortgage takes away equity quickly is the reason lenders lend less money.
The bank must hedge their bets, so they loan less when rates are higher to protect their equity position is the property.
The reverse mortgage company has one great fear. That is a home value below that which the borrower owes the mortgage company.
If the mortgage company is ever in this position it is totally out of luck. It must accept the sale price of the home as repayment for the loan.
Reverse mortgage borrowers planning on closing in the next thirty days will be getting some bad news from their lender. They've already been assured about how much money they will get.
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.
I reply the rates have gone up, not down.
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 part not talked about on the news is that investors in reverse mortgage backed securities are backing off purchasing these securities.
You gotta have people investing or the whole deal goes caput. So, profit margins increased by one percent in the last week.
It's not a small increase, at least at one time. Margins have been creeping up at 1/4 point at a time.
How this will affect people is two fold. The first is equity will be stripped away more quickly once the indexes increase to normal levels.
The other affect is a lower loan size.
The very fact that higher interest rates for the reverse mortgage takes away equity quickly is the reason lenders lend less money.
The bank must hedge their bets, so they loan less when rates are higher to protect their equity position is the property.
The reverse mortgage company has one great fear. That is a home value below that which the borrower owes the mortgage company.
If the mortgage company is ever in this position it is totally out of luck. It must accept the sale price of the home as repayment for the loan.
Reverse mortgage borrowers planning on closing in the next thirty days will be getting some bad news from their lender. They've already been assured about how much money they will get.
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 Debt Consolidation Loan at
7:25 AM
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