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Why 8% 30-year fixed rates may benefit reverse lending

8% rates for traditional and reverse mortgages


In today’s financial landscape, we find both the average HECM expected rate and the traditional 30-year mortgage hovering around eight percent. In this episode, we’ll delve into why this convergence offers a distinct advantage to reverse mortgage lenders and originators.


According to Money-com, predicting whether these rates will rise above or stay at 8% is uncertain due to numerous influencing factors. Chen Zhao, economics research lead at Redfin, suggests that the possibility of rates reaching or surpassing 8% is well within the realm of possibility — potentially unsettling news for prospective homebuyers and sellers. Well, that time has already come.


In the past month, individuals with average credit and smaller down payments have already secured mortgages at rates as high as eight or nine percent.


You might wonder how record-high mortgage rates could possibly benefit reverse mortgage lenders. Firstly, over the past decade…


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  1. The high interest rate environment is providing for much faster LOC growth!
    Those with a mortgage balance can make voluntary payments which reduces the amount of interest accruing which also increases the available LOC which grows at the 8%. A double-barrelled benefit!
    Those with free and clear houses can take out a reverse and only accrue interest on the fees while the remaining PL is in the available LOC which will grow at 8% compounded monthly.

  2. Shannon – my last several client proposals with a need for cash have included an analysis of a cash out refi, HELOC and HECM. Given that the rates on a HELOC are higher than a HECM and the cash out and HECM are on Par – the HECM is winning more often!

    • John- that’s fantastic news! A story that deserves to be shouted from the rooftops. Thank you. It was great to see you in Nashville!

    • John,

      Does your analysis include ongoing MIP?

  3. Yet the principal limit on an adjustable rate HECM is not determined by the 10 year CMT alone. The margin is also a factor in the determination of both the expected rate on an adjustable rate HECM and its adjustable note interest rate. Further, not only does the UPB on a HECM grow monthly by the sum of the note interest rate plus the ongoing MIP rate divided by 12 but so does the HECM LOC. Far too many times recently I have heard HECM originators tell listeners that the HECM LOC grows by the interest rate but that is not true; it grows as previously stated, i.e., it grows monthly by the note interest rate charged that month plus the ongoing MIP rate divided by 12.

    For example, if the ongoing MIP rate is 1.25% (on HECMs with CNAs [case numbers assigned] after 9/30/2010 but before 10/2/2017) and the note interest rate for that month is 8%, the compounding rate on the HECM LOC that month would be 0.77083%. If the HECM LOC was $100,000 as of the end of the prior month, the increase in the LOC (assuming no pay downs or draws) should be $770,83.

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