ARLO teaching about reverse mortgage margins

Understanding Your Reverse Mortgage: Key Factors

One of the most common questions about a reverse mortgage is how much money you, as the borrower, can receive.  The amount you can get depends mainly on two factors: your age and the loan’s interest rate and margin. Typically, the older you are, the more money you can receive. 

Lower interest rates also mean you can borrow more.  A higher loan margin means the interest rate must be lower to increase the amount you can receive from a reverse mortgage. The important rate to watch is the Initial Interest Rate (IIR).  This rate, which applies at the start of your loan, is determined by adding the index and the margin.

In this article, we’ll explain these factors and what they mean for you, including:

  • What is the index?
  • What is the margin?
  • What is LIBOR?
  • How do these affect me?
  • What should I ask my loan officer?
  • Where can I find more information?

What is the Index?

The index is a base interest rate that serves as a foundation for your reverse mortgage’s initial interest rate (IIR).  If the index goes up, so will the IIR.  

What is the Reverse Mortgage Margin?

The margin is the interest percentage added on top of the index by the lender, which provides the full IIR for your reverse mortgage.  The margin is not adjustable, meaning it stays the same for the duration of the loan regardless of any changes to the index.  Fixed-rate HECM loans don’t have an index or margin because the IIR is set for the life of the loan, so these elements apply only to variable-rate HECM loans.  

What is the LIBOR Rate?

The indices used for variable-rate HECM loans are often the 1-month LIBOR and the 1-year LIBOR.  LIBOR stands for London Interbank Offered Rate, which is the rate of interest that banks use when lending money to each other in London’s wholesale money markets.  In the U.S., LIBOR is a standard financial index used in capital markets and is usually published in the Wall Street Journal.  

How Do These Factors Affect Me?

As you shop around, pay close attention to the rates the reverse mortgage lenders provide.  These rates are crucial in determining how much money you can receive from your reverse mortgage and how much equity will remain in your home at the end of the loan before it is repaid.

Other factors affecting the total interest rate include:

  • The amount remaining on your forward mortgage (if you have one)
  • A financial assessment of your ability to keep up with insurance and maintenance costs
  • The appraised value of your home

When the margin and index are low, you will receive more money for your home, resulting in a low IIR.    

Margin FAQs


What is the current reverse mortgage adjustable rate?

The current reverse mortgage adjustable rate as of 6/11/2024 is 6.87%, including the index value of 5.12% and a margin of 1.75%.

What types of adjustable reverse mortgage rates are there?

As of 6/11/2024, there are monthly and annual adjustable rate options.  The current index available in the market is the CMT (Constant Maturity Treasury).  Margin options available are lower on the monthly adjustable options.

Is there a lifetime cap on adjustable-rate reverse mortgages?

The lifetime cap on an adjustable-rate reverse mortgage is either 5% or 10%, depending on the product option.  It is the maximum percentage that the rate can ever increase above the start rate at the time of loan closing.

Are there any periodic caps on adjustable-rate reverse mortgages?

As of 6/11/2024, there is no periodic adjustment cap, and the rate could increase to the lifetime cap at any time.

How does a reverse mortgage margin affect the rate?

The lenders’ margin is charged on top of the index value to calculate the fully indexed note rate.  For example, if the margin is 1.75% and the current index value is 5.12%, you will have a fully indexed note rate of 6.87%.

Are all reverse mortgage rates and margins the same?

No.  Contrary to what some believe, HUD does not control the interest rate or margin on HECM loans.  Lenders set their own margins, so shopping around and finding the best combination of margin and closing costs to suit your needs is advised.

Is the margin on a reverse mortgage fixed?

Yes.  The margin is fixed for the life of the loan.  The variable is the index you choose, whether a monthly or annual adjustable.

Questions to Ask Your Loan Officer

  • How is my interest rate determined?
  • What is the current index rate?
  • What margin will be applied to my loan?
  • How will changes in the index affect my loan?

For more information, speak with your loan officer or explore additional resources to understand how these factors impact your reverse mortgage.   ARLO™ recommends these helpful resources: