Home / Current Interest Rates (updated 09/11/2017)

Reverse Mortgage Rates & Why They Matter

You may have heard that changes are coming to the Federal Housing Administration-insured reverse mortgage program, the Home Equity Conversion Mortgage program. The agency announced in late august that it would be making several changes to HECM loans that will impact borrowers- both in terms of how much they will pay to get a reverse mortgage, and also how much they’ll be able to borrow.

One of the big changes is that the amount you will be able to borrow with a HECM loan depends largely on interest rates.

How your loan amount is determined

All HECM reverse mortgages use a specific table provided by the Department of Housing and Urban Development to determine loan amounts for borrowers. This amount is called the “principal limit.” The principal limit depends mainly on three factors: the borrower’s age, the home value, and current interest rates.

From home to home and borrower to borrower, every loan amount will be different. After October 1, the percentage of home equity that borrowers can access will range from around 27% to 75%. Generally speaking, older borrowers can access a greater percentage of home equity than their younger counterparts.

reverse mortgage interest rate factors

Why interest rates matter

The amount of home equity you can borrow is tied directly to the interest rate available at the time you get your reverse mortgage. Just like in the “forward” market, your interest rate determines the amount of interest you’ll pay. But in the reverse mortgage market, it also determines the amount you can borrow.

Under the changes that were recently announced, the amount that a 62 year old can borrow at an expected interest rate of 3% will be almost twice as much as what he or she can borrow at an expected interest rate of 8%, for example. (The expected rate is the estimated average interest rate over the life of the loan. For fixed rate loans, the expected rate is the same as the initial interest rate when the loan closes.)

For a 92-year-old borrower, the amount he or she can borrow when the expected rate is 3% is about 25% more than that borrower would be able to access when the expected rate is 8%.

Where interest rates are going

No one knows exactly what will happen to interest rates, but they have been historically low in recent years following the Great Recession. While there is no hard and fast rule, in general, when rates rise, reverse mortgage borrowers can borrow less. For those considering a reverse mortgage today, under the new rules, it makes sense to do the math on this so that you can achieve the optimum borrowing power available to you based on your age and home value.

Current Reverse Mortgage Programs.

   

Annual Rate 1.50% Margin

Note Rate: 3.22%   Lifetime Cap: 8.22%

Annual Rate 2.50% Margin

Note Rate: 4.23%   Lifetime Cap: 9.23%

All Reverse Mortgage Jumbo

Note Rate: 7.45%   APR: 9.06%

*rates as of 09/23/2017. Additional programs available. Complete quote request to receive a comparison of all available reverse mortgage plans. APR figures are based on a borrower age 68 with a property value of 150k.

Rates and Fees are subject to change without notice. These rates are for comparison purposes only. This is not an offer or commitment to lend at any set terms.

The total interest rate charged to your outstanding loan balance is the Margin + Index + Monthly Mortgage Insurance of 1.250%

Example 4.50% Fixed: 4.50% + 1.25% Monthly MIP = 5.75% in TOTAL interest charges.
Example Libor Annual: 1.50 Margin + current index of 1.72% + 1.25% Monthly MIP = 4.47% in TOTAL interest charges.

* Fixed Rate APR ran with $250,000 loan amount including 1.250% Mortgage Insurance Premium and standard 3rd party closing costs.

** Tenure or Line of Credit Plan: Assume the youngest borrower was 72 years old when you opened your Plan and you had an outstanding balance of $10,000 at the beginning of the Draw Period with an initial rate of 8.37%. If you took no other advances or payments and the rate increased as rapidly as possible so that the rate was 10.37% in the second year, 12.37% in the third year and 13.37% (5.0% above an assumed initial rate of 8.37%. (The maximum Annual Percentage Rate) in the fourth year and remained at the maximum rate, the minimum payment that would be due at the end of 13 years (based on the life expectancy of the youngest borrower) would be $51,517.55.

Choosing Fixed-Rate Vs Adjustable

You can choose a fixed rate or an adjustable rate and fixed rates sound great, but they are what is called a “closed end instrument” and require the borrower to take the entire loan at the very beginning of the transaction. For borrowers who are paying off an existing mortgage and need all their funds to pay off the current loan, this is no problem. 

For a borrower who has no current lien on their property or a very small one, this would mean that they would be forced to take the entire eligible mortgage amount on the day the loan funds. This might give a borrower $200,000, $300,000 or more in cash from the very first day that they do not need at the time and on which they are accruing interest. This can also have an adverse effect on some seniors with needs-based programs. (Medicaid: Seniors on Medicaid and some other needs-based programs would impact their eligibility by having the sudden addition of the liquid assets)

A borrower who is planning on using only a portion of their funds monthly need not pay interest on the entire amount from the very start, eroding the equity unnecessarily fast.  An adjustable rate will accrue interest at a much lower rate at today’s rates, but has a 10% cap and can go much higher if rates rise in the future.

However, the adjustable rate programs do allow you more flexibility in how you can receive your funds.  First option would be a cash lump sum.  This is not advised on the adjustable product as a cash lump sum request is usually associated with fixed interest rates, however it is available.  Second option would be a line of credit.  The Reverse Mortgage line of credit is not the same as a "Home equity Lines of Credit or (HELOC) that you can get at your local bank.  The Reverse Mortgage line of credit grows in available on the unused portion and cannot be frozen or lowered arbitrarily as the banks can and have done recently on the HELOC's.

Third option is a monthly payment option which can be set over a specific period of time and then cease or as a "tenure" which would be a monthly payment guaranteed for life.  Fourthly, a homeowner could choose any combination of the three options listed previously.

The adjustable rates are currently much more flexible to meet borrowers’ needs. One of the things that can determine the amount for which borrowers will ultimately qualify is the rate at which the loan accrues interest.  When the margins on the adjustable rates were lower and the fixed rate was higher, the adjustable rates gave borrowers more money in their pockets in the form of eligibility. Now, most borrowers we run through the HECM calculator receive more money on the fixed rate program.

This is extremely important to know if you are trying to get as much as possible to pay off an existing lien. It also means that the higher the margin, the less money the borrower will receive and the faster interest on the loan will accrue. So the thing to look for in a reverse mortgage here is definitely the rate on a fixed rate or the margin on an adjustable rate that is being quoted. 

Also See:

About Libor Index

LIBOR stands for "London Inter-Bank Offered Rate."  It is based on rates that contributor banks in London offer each other for inter-bank deposits.  In October of 2007, the U.S. Federal Housing Administration (FHA) ruled in favor of insuring ARM loans based on the one-year LIBOR index.

At the same time, HUD also ruled to allow the one-month LIBOR to be used for the purpose of calculating adjustments to interest rates for monthly adjusting Home Equity Conversion Mortgage (HECM). Below is a chart of LIBOR rates for the last 10 years.

LIBOR loans normally have lower margin rates than CMT (constant maturity of U.S. treasuries).  This is particularly helpful to senior borrowers due to the fact that the CMT margin became increasingly less desirable when selling the loans in the secondary markets and the change helped insure the availability of the market for ongoing lending.  

12 month libor annual index from 1998 present

If you had an annual adjustable rate in January 2001 with a 2.50% margin your fully indexed note rate would have been 7.67% (+1.25% MIP) for a total interest charge to your outstanding loan balance of 8.92%.

Note: That same reverse mortgage in 2001 with an open line of credit would have grown in availability by that same rate of 8.92% - Example: $200k Line of credit would grow in availability by $1,486.66 which then compounds month after month, year after year. Be sure to read more about this important line of credit growth rate.

Where we are now:

current annual libor index september 2016

 

History of Adjustable & Fixed Rates

Below you will find the history of the Libor and National Fixed Rate Averages since 2000. We have prepared this illustration to better help your decision when choosing your interest rate option. Be aware these are only the indexes themselves and do not include the lenders margin + 1.250% Monthly Insurance Rate.

1-Year Annual LIBOR VS National Fixed Rates
 
Time Period: January, 2000 - December, 2016

Source: http://mortgage-x.com/x/indexes.asp

1-Year LIBOR, Natl Avg Contract Mtg Rate

Date 1-Year
LIBOR INDEX VALUE (DOES NOT INCLUDE LENDER MARGIN)
Avg Fixed Rates
Jan 2000 6.659 7.79
Feb 2000 6.760 7.95
Mar 2000 6.970 8.01
Apr 2000 6.964 8.00
May 2000 7.453 8.08
Jun 2000 7.214 8.17
Jul 2000 7.047 8.09
Aug 2000 6.978 8.00
Sep 2000 6.811 7.89
Oct 2000 6.725 7.81
Nov 2000 6.618 7.73
Dec 2000 5.997 7.59
Jan 2001 5.284 7.25
Feb 2001 4.925 7.10
Mar 2001 4.670 7.02
Apr 2001 4.330 7.01
May 2001 4.259 7.08
Jun 2001 4.055 7.10
Jul 2001 3.835 7.10
Aug 2001 3.600 6.99
Sep 2001 2.650 6.86
Oct 2001 2.311 6.66
Nov 2001 2.492 6.56
Dec 2001 2.445 6.69
Jan 2002 2.420 6.81
Feb 2002 2.496 6.77
Mar 2002 3.006 6.77
Apr 2002 2.613 6.88
May 2002 2.634 6.74
Jun 2002 2.251 6.62
Jul 2002 2.070 6.48
Aug 2002 1.943 6.32
Sep 2002 1.813 6.23
Oct 2002 1.664 6.09
Nov 2002 1.705 6.03
Dec 2002 1.447 6.04
Jan 2003 1.477 5.91
Feb 2003 1.368 5.88
Mar 2003 1.340 5.76
Apr 2003 1.362 5.68
May 2003 1.2214 5.58
Jun 2003 1.2014 5.36
Jul 2003 1.2789 5.34
Aug 2003 1.4714 5.61
Sep 2003 1.2857 5.89
Oct 2003 1.4551 5.78
Nov 2003 1.4867 5.79
Dec 2003 1.4582 5.74
Jan 2004 1.4607 5.63
Feb 2004 1.3645 5.69
Mar 2004 1.3401 5.43
Apr 2004 1.8082 5.37
May 2004 2.0764 5.73
Jun 2004 2.4682 5.96
Jul 2004 2.4632 5.88
Aug 2004 2.3001 5.77
Sep 2004 2.4445 5.63
Oct 2004 2.5289 5.64
Nov 2004 2.9607 5.65
Dec 2004 3.1004 5.71
Jan 2005 3.2710 5.72
Feb 2005 3.5114 5.68
Mar 2005 3.8420 5.76
Apr 2005 3.7101 5.86
May 2005 3.7789 5.80
Jun 2005 3.8632 5.65
Jul 2005 4.1745 5.68
Aug 2005 4.3123 5.83
Sep 2005 4.4067 5.85
Oct 2005 4.6765 5.98
Nov 2005 4.7379 6.22
Dec 2005 4.8226 6.29
Jan 2006 4.9412 6.30
Feb 2006 5.1526 6.31
Mar 2006 5.2476 6.43
Apr 2006 5.4217 6.50
May 2006 5.4139 6.61
Jun 2006 5.7660 6.65
Jul 2006 5.5910 6.77
Aug 2006 5.4501 6.75
Sep 2006 5.2985 6.59
Oct 2006 5.3348 6.54
Nov 2006 5.2439 6.45
Dec 2006 5.3139 6.40
Jan 2007 5.4414 6.37
Feb 2007 5.3328 6.40
Mar 2007 5.2009 6.33
Apr 2007 5.2967 6.28
May 2007 5.3885 6.37
Jun 2007 5.4048 6.58
Jul 2007 5.3914 6.74
Aug 2007 5.1847 6.73
Sep 2007 5.0703 6.59
Oct 2007 4.8841 6.50
Nov 2007 4.5328 6.35
Dec 2007 4.4305 6.23
Jan 2008 3.5091 5.97
Feb 2008 2.8140 5.87
Mar 2008 2.5124 6.03
Apr 2008 2.8019 5.97
May 2008 3.0270 6.04
Jun 2008 3.4106 6.23
Jul 2008 3.2852 6.41
Aug 2008 3.2374 6.46
Sep 2008 3.3365 6.17
Oct 2008 3.8236 6.16
Nov 2008 2.8435 6.18
Dec 2008 2.4058 5.51
Jan 2009 1.9038 5.12
Feb 2009 2.0571 5.04
Mar 2009 2.1240 5.06
Apr 2009 1.9409 4.88
May 2009 1.7007 4.88
Jun 2009 1.6773 5.09
Jul 2009 1.5014 5.26
Aug 2009 1.4266 5.25
Sep 2009 1.2709 5.16
Oct 2009 1.2339 5.02
Nov 2009 1.0980 5.01
Dec 2009 0.9999 4.92
Jan 2010 0.9059 5.01
Feb 2010 0.8518 5.05
Mar 2010 0.8698 4.99
Apr 2010 0.9514 5.02
May 2010 1.1148 4.99
Jun 2010 1.1894 4.91
Jul 2010 1.1240 4.78
Aug 2010 0.9485 4.65
Sep 2010 0.8073 4.55
Oct 2010 0.7688 4.49
Nov 2010 0.7640 4.42
Dec 2010 0.7842 4.58
Jan 2011 0.7817 4.71
Feb 2011 0.7928 4.79
Mar 2011 0.7800 4.84
Apr 2011 0.7699 4.80
May 2011 0.7417 4.74
Jun 2011 0.7267 4.62
Jul 2011 0.7445 4.57
Aug 2011 0.7774 4.56
Sep 2011 0.8315 4.38
Oct 2011 0.9059 4.19
Nov 2011 0.9934 4.22
Dec 2011 1.0987 4.15
Jan 2012 1.1162 4.25
Feb 2012 1.0732 4.08
Mar 2012 1.0540 3.90
Apr 2012 1.0489 3.93
May 2012 1.0596 3.78
Jun 2012 1.0694 3.67
Jul 2012 1.0661 3.66
Aug 2012 1.0433 3.56
Sep 2012 1.0013 3.56
Oct 2012 0.9235 3.44
Nov 2012 0.8639 3.36
Dec 2012 0.8489 3.29
Jan 2013 0.8175 3.35
Feb 2013 0.7635 3.43
Mar 2013 0.7361 3.54
Apr 2013 0.7181 3.56
May 2013 0.6943 3.40
Jun 2013 0.6841 3.55
Jul 2013 0.6844 4.01
Aug 2013 0.6682 4.26
Sep 2013 0.6545 4.38
Oct 2013 0.6190 4.32
Nov 2013 0.5878 4.21
Dec 2013 0.5788 4.25
Jan 2014 0.5761 4.37
Feb 2014 0.5552 4.30
Mar 2014 0.5569 4.22
Apr 2014 0.5505 4.24
May 2014 0.5387 4.18
Jun 2014 0.5417 4.08
Jul 2014 0.5543 4.09
Aug 2014 0.5596 4.08
Sep 2014 0.5765 4.06
Oct 2014 0.5535 4.11
Nov 2014 0.5615 4.00
Dec 2014 0.5991 3.98
Jan 2015 0.6225 3.88
Feb 2015 0.6572 3.77
Mar 2015 0.6994 3.80
Apr 2015 0.6964 3.78

 

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