If you were to ask me one year ago which choice for senior borrowers was the better one, between the fixed rate and the adjustable, I would have told you the adjustable with few exceptions.
Cut to the present and that isn't so much the case anymore. This is because the banks dealing in reverse mortgages keep striving to increase their take on the deal.
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 give an example the borrower may have gone with an adjustable rate mortgage with an index of one percent. If the margin was an additional one percent the actual loan rate would have been 2%.
What's changed over the last year is this margin. By April of last year margins went to 1.5%. In the fall they upped again to 1.75%.
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.
I won't get into a litany of reasons why the adjustable is a better all around reverse mortgage than the fixed. It is, but certain circumstances make the fixed more attractive right now.
Here is a thought: what if, at close of escrow, the senior takes a large lump sum when getting a reverse mortgage.
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.
Yes, it is true that the ARM is at an unbelievably low point right now, but we're realists and we know this sucker is going up sooner or later.
The adjustable rate mortgage formerly had a big spread between it and the fixed rate in terms of how much money a lender would lend.
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.
Cut to the present and that isn't so much the case anymore. This is because the banks dealing in reverse mortgages keep striving to increase their take on the deal.
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 give an example the borrower may have gone with an adjustable rate mortgage with an index of one percent. If the margin was an additional one percent the actual loan rate would have been 2%.
What's changed over the last year is this margin. By April of last year margins went to 1.5%. In the fall they upped again to 1.75%.
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.
I won't get into a litany of reasons why the adjustable is a better all around reverse mortgage than the fixed. It is, but certain circumstances make the fixed more attractive right now.
Here is a thought: what if, at close of escrow, the senior takes a large lump sum when getting a reverse mortgage.
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.
Yes, it is true that the ARM is at an unbelievably low point right now, but we're realists and we know this sucker is going up sooner or later.
The adjustable rate mortgage formerly had a big spread between it and the fixed rate in terms of how much money a lender would lend.
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.
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