Reverse mortgage interest rates

 

Mortgage Rates

The recent near collapse of Fannie Mae and Freddie Mac has put a lot of spotlight on mortgages in the United States and even abroad.  The two have been put under conservatorship.

Many people, including the Treasury Secretary, Henry Paulson, believe will at least "keep the lanes in the mortgage freeway open.  It is hard for borrowers with any blemish on their credit reports to qualify for a loan, and even if they do, the mortgage rates are humongous. (J W Elphinstone)

There are several important considerations that a prospective reverse mortgagor needs to understand about rates.  However, this is not be considered as a final elucidation since the pendulum that is the reverse mortgage rate and interest swings, and quite so often.

Home Keeper Reverse Mortgage Interest Rate

Home Keeper reverse mortgage rates are built on both the most current weekly average of the one-month secondary market CD index as published in the Federal Reserve's H-15 Bulletin and a margin set by Fannie Mae.

 This margin never changes over the life of the loan.  It is also not related to the age of the borrower.  It is critical to note that the stability or lack of it, in the rate of interest largely depends on the index on one-month CD's changes.  This may change monthly.

The initial rate and all subsequent adjustments must be rounded to the nearest 1/8 percent (to three decimal places) up or down. (Source)
These rates have a cap on increase (rate cap).  They may never go beyond 12 percent over the loans life.

 It is therefore possible for your reverse mortgage to increase at any rate every month as long as it does not exceed the statutory set limit.  Graphically, one can imagine that their loan interest rate is 5 percent per month.  It cannot therefore exceed 17 percent in any given month.  However, and this is the scary bit, it may, in one month, skip from 5 percent to 17 percent.These rates are classical to Fannie Mae.

Home Equity Conversion Mortgage (HECM) Rates

There are two rates for this mortgage.  Firstly, the Initial rate or current reverse mortgage rate.  The interest rate is chargeable on HECM loan balance.  These rates are static once selected and are either monthly or annual.  They are tied to the annual U S Treasury Security Rate which also sets the initial interest rate.

For these who borrow under this scheme and also choose the trickle down release of funds, the rate paid on the unused balance is the same as that reverse mortgage charged on any portion of the mortgage that has been actually taken.

Expected reverse mortgage rates

This also falls under HECM interest rates.  It is static rate used to calculate the amount of reverse mortgage that one can access.  Interestingly, it is used to gauge the loan proceeds to the mortgagor.  This rate will match the current U. S Treasury Securities rate whose maturity rate is ten years.

Reverse mortgage interest rate usually charged on the loan balance is the initial or current mortgage rate and not the expected rate which is subject to change each Tuesday immediately after the Federal Reserve reverse interest rates are announced.

Effect of reverse mortgage interest rates

In short, the higher the interest rate, the faster the loan growth.  The reverse is true.

Reference

1. URL - http://news.yahoo.com/mortgages.
2. URL – http://wikipedia.com