Reverse Mortgage Rates come down
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The fixed rates on HECM reverse mortgages have rapidly decreased in past couple of weeks. A month ago, the rates were in the low 7s, and today are in the high 5’s, almost a 30% decrease. The cash yield for a 70 year old in a $300,000 Washington, DC home would be $8000 less on a 5.91% fixed rate than the current HECM 200 yield at the 5.61% expected rate. One of the potential draw backs of the Fixed rate HECM has always been the higher rate and the fact that you have to take the lump sum at closing. In situations where the client is paying off an existing forward mortgage of similar amount with a higher rate, this is a great hedge against future rate increases on the CMT or LIBOR. So if that same someone is concerned about CMT or LIBOR rates increasing into the 4s or 5s again, the Fixed rate HECM should be considered.
Its really not that complicated. Right now, the CMT is providing a higher cash yield and higher credit line growth with the HECM 175 and HECM 200 but the LIBOR based product is at a lower margin (125, 137.5 or 150), so any future unpaid balance would not accumulate interest as fast where the margin was less. It comes down to “pay me now, or pay me later”.
Speaking of pay me now, this week saw another of the large proprietary jumbo programs go away as the Metlife owned Everbank Reverse Mortgage discontinued their RevSelect program for jumbo reverse mortgages. There may be one still standing, but those using it have not been bragging about their yields or the ease of getting them submitted and approved. Countrywide is still offering their SimpleEquity program but their yield has also drastically dropped and in most cases, the HECM is providing better cash yields than their jumbo product which is ANOTHER reason the FHA Modernization Bill needs to more quickly move into place. A conference call from a month ago between NRMLA and HUD discussed the possibility that we won’t see lending limits changed until January 2009. That leaves a LOT of seniors without the ability to get out from under higher adjusting rates on their regular mortgages and leaving them with cash flow issues during a time where their retirement portfolios are taking it on the chin.
The reverse mortgage is a prime product to alleviate that cash flow concern and the rates are favorable across the board for higher yield and less interest accrual on balances where even some with deep pockets don’t readily have access to cash.
Rick McInturff
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