We keep hearing about a continuous drop in interest rates as the Fed desperately tries to keep liquidity in the marketplace.
Seniors more so than others keep track of these things. So, I get a lot of phone calls asking me how the low rate will alter their loan. They assume it will change it for the better.
I reply the rates have gone up, not down.
What is going on here is two different forces. The first is truly declining interest rates. The main index used in the reverse mortgage industry for the ARM product is down to .44% this last week.
The part not talked about on the news is that investors in reverse mortgage backed securities are backing off purchasing these securities.
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.
There are a pair of important affects the rate increase will have have. To begin higher interest rates increase the rate at which the homeowner loses equity.
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 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.
Lending laws don't allow lenders to come after the owners or owner's heirs for the difference. They are stuck with the home value as collateral.
Who this rate increase will effect most dramatically are those currently in escrow who have already been told how much money they will receive with the former low rates.
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.
These tough times are hitting everyone. - 20896
Seniors more so than others keep track of these things. So, I get a lot of phone calls asking me how the low rate will alter their loan. They assume it will change it for the better.
I reply the rates have gone up, not down.
What is going on here is two different forces. The first is truly declining interest rates. The main index used in the reverse mortgage industry for the ARM product is down to .44% this last week.
The part not talked about on the news is that investors in reverse mortgage backed securities are backing off purchasing these securities.
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.
There are a pair of important affects the rate increase will have have. To begin higher interest rates increase the rate at which the homeowner loses equity.
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 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.
Lending laws don't allow lenders to come after the owners or owner's heirs for the difference. They are stuck with the home value as collateral.
Who this rate increase will effect most dramatically are those currently in escrow who have already been told how much money they will receive with the former low rates.
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.
These tough times are hitting everyone. - 20896
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