Reverse Mortgage Information

The margins of reverse mortgages have recently been revised upwards by reverse mortgage lenders in the country.

The rates/margins of reverse mortgages are always in a state of fluctuation. There are both fixed rate and adjustable rate reverse mortgages options available.

A reverse mortgage (fixed-rate) is a ‘closed’ instrument, meaning that borrowers can get their first draw-out and then there are no other additional draws.

This may not be an issue for senior home owners who would like to draw all the funds at the outset to pay off an existing mortgage or for use for the HECM for home purchase program. For the senior borrower who would like monthly payments for lifetime or would like to avail of a line of credit, the only option available is the adjustable rate fixed mortgage.

For senior home owners who intend to take on all of the available funds at the start itself, they can now choose between an adjustable rate and a fixed rate reverse mortgage. Borrowers using adjustable rates get affected when the adjustable rate margins get raised.

The adjustable rate mortgages accrue interest at a lesser rate than a fixed rate mortgage does. This means that, the balance on a reverse mortgage loan will not increase as quickly as it does in a fixed rate mortgage.

In the past, a senior home owning borrower could get more cash with a monthly adjustable rate, because the fixed rates were higher and the margin on the adjustable rate mortgage was comparatively lower.

With the margin increases in reverse mortgages with an adjustable rate, the borrowers usually benefit more by using a fixed-rate reverse mortgage rather than a reverse mortgage with an adjustable rate. This is because the fixed rate never increases during the life-time of the reverse mortgage, but the adjustable rate can increase - some times by about 10% during the life of the reverse mortgage.

Due to the changes in the credit industry and the reverse mortgage industry, borrowers need to lock in their rates in a different manner. Borrowers find that the margins of fixed rate have increased and so the cash that they were planning to receive is actually a lot lower.

Borrowers seem to get affected because the margins are continuing to rise, to the point where the funds are insufficient to complete the repayment of an existing mortgage.

Margins have been known to increase by up to 200 basis points (2%) in the past year, and the values have now gone down, which is why margins may be a deciding factor when deciding whether borrowers qualify for reverse mortgages.