Reverse Mortgage Rates Hike 1%
We keep hearing about a continuous drop in interest rates as the Fed desperately tries to keep liquidity in the marketplace.
I'm getting calls from would-be reverse mortgage customers asking me how the dropping interest rates affect the amount of money a lender would lend to them.
Much to their shugrin I explain that rates have gone the other way.
Their logic is not incorrect. In actuality interest rates have come down. In fact the Constant Maturity Treasure Index is now down to point forty-four percent. The thing is this not the only factor.
The big reason rates are actually coming up is reverse mortgage investors want more profit out to these loans.
How do get people to invest? You increase profit margins, which is exactly what Fannie Mae did. They increased the margin by 1%.
The former margin was set at 1.75%. Currently at 2.75% and probably going up. That is a 36% increase.
The higher interest rate results in a couple different effects. The first being the reverse mortgage borrowers loses equity in the home that much quicker.
And secondly, would-be borrowers will receive smaller loans.
The two affects are related in the fact that the higher rates eat into the house equity more rapidly.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
The worst possible scenario for those investing in reverse mortgages is to have loan amount which is greater than the actual value of the property.
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.
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.
Some of them are planning to pay off mortgages in attempt to eliminate that high payment. Some of these folks won't be able to pay that mortgage off now.
No one seems to be immune to these tough financial times.
I'm getting calls from would-be reverse mortgage customers asking me how the dropping interest rates affect the amount of money a lender would lend to them.
Much to their shugrin I explain that rates have gone the other way.
Their logic is not incorrect. In actuality interest rates have come down. In fact the Constant Maturity Treasure Index is now down to point forty-four percent. The thing is this not the only factor.
The big reason rates are actually coming up is reverse mortgage investors want more profit out to these loans.
How do get people to invest? You increase profit margins, which is exactly what Fannie Mae did. They increased the margin by 1%.
The former margin was set at 1.75%. Currently at 2.75% and probably going up. That is a 36% increase.
The higher interest rate results in a couple different effects. The first being the reverse mortgage borrowers loses equity in the home that much quicker.
And secondly, would-be borrowers will receive smaller loans.
The two affects are related in the fact that the higher rates eat into the house equity more rapidly.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
The worst possible scenario for those investing in reverse mortgages is to have loan amount which is greater than the actual value of the property.
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.
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.
Some of them are planning to pay off mortgages in attempt to eliminate that high payment. Some of these folks won't be able to pay that mortgage off now.
No one seems to be immune to these tough financial times.
posted by Debt Consolidation Loan at
8:14 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home