Let’s take a step back and look at the correlation between interest rates and the amount of money someone is able to receive for their loan. The amount of money a borrower is able to receive for their loan is dependent on two factors: age and interest rate. The older one is, the more they can receive for their home. The lower the interest rate, the more they can receive for their home. The graph is below:
What this means is that the higher the margin, the lower the interest rate needs to be in order to ensure the borrower is able to receive the maximum amount for their home.
However, in the wake of Fannie Mae’s price hikes, lenders have increased the margins on their reverse mortgage products. Products that allow borrowers to receive the maximum amount of money for their home are not being offered as frequently. Some banks are even charging lenders a fee in order to offer products such as the LIBOR 250, which still gives borrowers the principal limit. This means that consumers will likely be able to receive a smaller percentage of their home’s value in the future– especially for younger borrowers.
For example, the current difference between a 63 year old homeowner receiving the LIBOR 300, which is the lowest product Wells Fargo offers, and the LIBOR 275, which many other lenders are offering, is 3.1% of the home’s value.
- For a $500,000 home, this amounts to $15,500.
- For a $100,000 home, this is $3,100.
It is not an insignificant figure.
To do the calculations, a reverse mortgage calculator is recommended.
