Fixed Rate Possibly Better than Adjustable in Reverse Biz
At this time last year, if a senior was to ask me which was a wiser option, the fixed interest rate or the one that adjusts, my response to him would (in almost all cases) have been the latter.
That opinion is changing as the investors in Reverse mortgage backed securities continue to clamor for more and more profit out of these loans.
The margin that banks and their investors needed was at approximately 1% at this time last year. Go ahead and liken the "margin" to "profit margin". It is the profit in the loan.
To help you understand in a real life example. Let's say a year ago a borrower used an ARM with it's index equaling 1%. The lender adds on 1% for its margin. Add the two together and you arrive at an actual interest rate of two percent.
Well, margins have been quickly changing. They went to 1.5% by the spring of last year, and changed to 1.75 about 3 months ago.
What do you know, Fannie Mae just informed us a new price change is coming. The margin is expected to rise at least 1/2 point in the coming days.
There are many reasons why the ARM is such an attractive reverse mortgage option. In fact I wrote an article dedicated to it, but these changes are cutting into the weight of my arguments.
One example is if the borrower cashes out all or the vast majority of the total a possible loan immediately.
Let's say the lender will allow the borrower to cash out a large number like $200,000. If the seniors takes it all the fixed may be better than the ARM. The reason is the fixed rate is roughly the same as the fifteen year average for the ARM.
Although the adjustable is still extremely low right now one can expect it to go up in the coming years. We can't expect these low rates to continue.
One other benefit to the ARM over the fixed was that lenders were giving substantially more money on the ARM. This number is not nearly so profound today.
Formerly, the adjustable gave the senior much more money. No longer. It's almost a wash now. With the new higher margins the fixed might even get the borrower more than the adjustable.
The fixed rate was the ugly sister in reverse mortgages. This is changing.
That opinion is changing as the investors in Reverse mortgage backed securities continue to clamor for more and more profit out of these loans.
The margin that banks and their investors needed was at approximately 1% at this time last year. Go ahead and liken the "margin" to "profit margin". It is the profit in the loan.
To help you understand in a real life example. Let's say a year ago a borrower used an ARM with it's index equaling 1%. The lender adds on 1% for its margin. Add the two together and you arrive at an actual interest rate of two percent.
Well, margins have been quickly changing. They went to 1.5% by the spring of last year, and changed to 1.75 about 3 months ago.
What do you know, Fannie Mae just informed us a new price change is coming. The margin is expected to rise at least 1/2 point in the coming days.
There are many reasons why the ARM is such an attractive reverse mortgage option. In fact I wrote an article dedicated to it, but these changes are cutting into the weight of my arguments.
One example is if the borrower cashes out all or the vast majority of the total a possible loan immediately.
Let's say the lender will allow the borrower to cash out a large number like $200,000. If the seniors takes it all the fixed may be better than the ARM. The reason is the fixed rate is roughly the same as the fifteen year average for the ARM.
Although the adjustable is still extremely low right now one can expect it to go up in the coming years. We can't expect these low rates to continue.
One other benefit to the ARM over the fixed was that lenders were giving substantially more money on the ARM. This number is not nearly so profound today.
Formerly, the adjustable gave the senior much more money. No longer. It's almost a wash now. With the new higher margins the fixed might even get the borrower more than the adjustable.
The fixed rate was the ugly sister in reverse mortgages. This is changing.
posted by Debt Consolidation Loan at
7:23 PM
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