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Reverse Mortgages
Interest Rates
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Fixed Rate Reverse Mortgage
Adjustable Rate Reverse Mortgage
The following Professionals are involved in today's Mortgage Markets :
A Reverse Mortgage accrues interest just like a traditional mortgage except that the homeowner is not making payments each month to reduce the loan balance. As a result the loan balance grows until the homeowner permanently moves out of the property or passes away.
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Reverse Mortgages can have a " Fixed " or " Adjustable " Interest Rate. About two-thirds of Reverse Mortgages are " Adjustable " because the rate is usually lower than a fixed rate. Because the homeowners do not make monthly payments, they are not usually as concerned about possible future changes in the interest rate.
Over the last few years, the interest rate on a Reverse Mortgage has fluctuated between 3% and 5%. The real interest rate is one half of a percentage point above the quoted rate because the total rate includes the FHA's ongoing mortgage insurance premium. For example, if the quoted rate is 4.1%, the rate with insurance is 4.6%.
The " Fixed " rate programs are specific to each Reverse Mortgage Lender and are not " indexed " to published interest rates. To determine the currently available " Fixed " rate, a Reverse Mortgage Lender must prepare a " Good Faith Estimate ".
The " Adjustable " rate programs have interest rates that increase or decrease as a market interest rate " index " changes. The two " indexes " that are used today are the " LIBOR " and " CMT ".
" CMT " - stands for " Constant Maturity Treasury ". This is more commonly known as a " Treasury Bill " or " T-Bill ".
" LIBOR " - stands for " London Inter-Bank Offered Rate ". The " LIBOR " is a popular alternative to the " CMT " for lenders because it is an international " index " rate instead of being a US-focused " index ".
" CMT " - stands for " Constant Maturity Treasury ". This is more commonly known as a " Treasury Bill " or " T-Bill ".
" LIBOR " - stands for " London Inter-Bank Offered Rate ". The " LIBOR " is a popular alternative to the " CMT " for lenders because it is an international " index " rate instead of being a US-focused " index ".
Adjustable Rate Calculation :
The total interest rate is calculated by adding the interest rate " index " plus a " margin " set by the lender. For example, a HECM Reverse Mortgage CMT 300 refers to the Program that is using the " CMT " index and a " margin " of 300. If the CMT index is 2.10% then the total interest rate is 2.10% plus the 3.00% " margin " which equals a total interest rate of 5.10%.
The " Adjustable " rate can be adjusted " monthly " or " annually ". Lenders cannot adjust annually adjusted rates by more than 2 percentage points per year and not by more than 5 total percentage points over the life of the loan. FHA does not require interest rate caps on monthly adjusted Reverse Mortgages.