REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

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

The days of borrowing against ever-rising home equity and having home price appreciation cancel out the pain of loan interest costs appear to be over. Reverse mortgages are often described as “rising debt, falling equity loans”. Yet, for several years reverse mortgage borrowers in many parts of the country have enjoyed a “rising debt, rising equity” environment with home equity growth far outpacing the interest accruing on reverse mortgage debt.

Each quarter we compare the rates of housing value growth reported by OFHEO with average interest rates for HECM reverse mortgages over the comparable one- and five-year periods. The difference (variance) provides a simple measure of the best (and worst) areas for reverse mortgages borrowers. We call this the Reverse Mortgage Friendliness Index. (more…)

Below are some frequently asked questions and answers about reverse mortgage rates and fees. In addition to these FAQ’s, we have questions and answers focusing on other reverse mortgage topics:

Reverse Mortgage Basics

Reverse Mortgages and Taxes

Reverse Mortgage Counseling

Questions From Visitors

If you have questions about reverse mortgages not included here, you can use the form at the bottom to submit it! We’ll do our best to get you a prompt and accurate reply.

1. What interest rate will I pay for this loan?
2. What costs are associated with taking out a reverse mortgage?
3. Can I lock-in a the interest rate on a reverse mortgage to protect against rate increases?
4. Is it true that once you have decided to get a HECM with either a monthly or annually adjusting interest rate, you cannot change your decision?

Reverse Mortgage Rates and Fees Questions and Answers

1. What interest rate will I pay for this loan?

   All major reverse mortgage programs have adjustable rates that are tied to a specific index. It is important to realize that, unlike traditional mortgages, there is no interest rate competition between lenders for the same type of reverse mortgage. Click here to see current rates for major reverse mortgage programs.

2. What costs are associated with taking out a reverse mortgage?

   Following are costs typically associated with a Home Equity Converion Mortgage (HECM) - the most popular type of reverse mortgage. Most other reverse mortgage programs have similar fee structures:

   • Origination Fee - $2,000 or 2% of the “maximum claim amount” (basically home value).
   • Mortgage Insurance - initial insurance fee is 2% of home value or FHA 203b limit, whichever is lower. Also, a recurring premium equal to 1/2 of 1 percent (0.5%) of the outstanding loan balance is charged annually for mortgage insurance over the life of the loan.
   • Closing Costs - Appraisal, floodplain certification, title search, title insurance, recording fees, state or local taxes, attorney fees, etc. Expect these costs to total $2,000 - $3,000.
   • Service Set Aside - expect to pay $30 - $35 per month to cover costs associated with servicing the loan (i.e. statement preparation, loan payments, etc.).

   Most of these fees can be paid either in cash at closing or financed as part of the loan balance. Of course, if fees are financed, you will pay interest on them.

3. Can I lock-in a the interest rate on a reverse mortgage to protect against rate increases?

   On a HECM loan - the most popular type of reverse mortgage - the “initial” rate that determines how much you can borrow can be locked in for 120 days after the date of application. However, the “current” rate, which determines the total interest ultimately paid on the loan is a rate that changes (either monthly or annually) and cannot be locked in.

4. Is it true that once you have decided to get a HECM with either a monthly or annually adjusting interest rate, you cannot change your decision?

   True. Selection of the rate adjustment period is a one-time, irrevocable decision.

The Office of Federal Housing Enterprise Oversight (OFHEO) has released its Housing Price Index (HPI) for the quarter ended December 31, 2006. The HPI is a measure of the movement of single-family house prices around the country.

We use data from the HPI to construct the HECM Rate Variance Tool. This tool simply compares Housing Price Index changes to the average rate charged on HECM reverse mortgage loans for the same period. This guidepost provides reverse mortgage borrowers and potential borrowers with a guidepost as to how “reverse mortgage friendly” their local community is.

Areas showing large positive variances area communities where home values rose at a faster rate than the average inteest charged on a HECM monthly-adjusting loan for the same period of time. Low or negative variances indicate communities where net home equity is being diminished not only by a growing reverse mortgage balances, but by stagnant or declining home values.

We believe five-year data provides a better guidepost of the “reverse mortgage friendliness” of any given area since year-to-year abberations are smoothed. Based on the just released OFHEO data, here are the Top 10 and Bottom 10 Reverse Mortgage Friendly housing markets:

Reverse mortgage interest rates receded across the board with the most recent rate adjustments annoiunced by the Fed. Rates on the HECM monthly- and annual-adjusting loans, together with the Fannie Mae HomeKeeper reverse mortgage all tumbled:

Of course, the news on reverse mortgage interest rates got even better with the announcement that Wells Fargo (the largest reverse mortgage lender) has joined BNY Mortgage in lowering the margin on monthly-adjusting HECM loans from 1.50% to 1.00%. The margin cuts by these two major lenders have set a new standard for monitoring reverse mortgage rates. In coming weeks, we will treat the lower-margin products as the standard HECM product.

[tag]Reverse mortgages[/tag] are specialized [tag]mortgage products[/tag] available only to [tag]senior citizen[/tag] homeowners. HECMs are the most popular type of reverse mortgage. Interest rates for both annual- and monthly- adjusting HECM loans are indexed to the one-year constant maturity [tag]US Treasury rate[/tag].

Under a reverse mortgage, the lender makes loan payments to the borrower and the loan is repaid when the house is sold or the homeowner dies. The monthly or annually adjusting interest rate determines how fast the loan balance grows.

Visit our reverse mortgage interest rate tool for further information and analysis.

Click on a state to see the variance between growth in home prices compared to the interest rates paid on HECM (monthly-adjusting) reverse mortgage loans. Some metropolitan areas straddle state boundaries. In these cases, we placed the area in the state having the largest city include in the area (e.g. Louisville-Jefferson County, KY-IN is found under Kentucky).

In general, higher positive variances indicate that home values rose at a faster rate than the HECM monthly-adjusting loan rate for the same period of time. Conversely, low or negative variances should be reason for concern since this could mean your net home equity is being diminished not only by a growing reverse mortgage balance, but by stagnant or declining home values. Five-year data likely provides a more reliable indication of the "reverse mortgage friendliness" of any given area since year-to-year data abberations are smoothed.

As with any such tool, use only as a guidepost. Individual neighborhoods (even indiviual homes) can appreciate or depreciate at rates much different than the overall community. Also, there are many complex aspects to reverse mortgages not accounted for here.