I suppose it was inevitable. The government is spending money it doesn’t have; the Federal Reserve is printing money to pay off the country’s debt, and the dollar has become weaker and weaker against the world’s other currencies. So, you might ask, how does that affect you and me? Inflation….food, gasoline, heating and clothing prices go up; as does the cost of money – interest rates. We’ve seen the U.S. Treasury bonds heading upward for the past couple of months; which, until now, hasn’t changed the actual rates on the Reverse Mortgages, but it has been affecting the amount one can borrow.
Back in October 2010, the calculation of the principal limit was virtually the same if one chose the ARM as it was if the Fixed Rate was the choice. Today, although the actual interest rate charged on the ARM is only slightly higher than last October, the “expected rate” has increased quite a bit. Confusing? The so-called expected rate is tied to the 10 Year Treasury Note, and is used in the calculation of the borrowers’ principal limit along with their age and the value of the home. As the expected rate increases, the principal limit decreases, and the borrower sees less money at the closing. (The index for the actual interest rate on the ARM is different and not as volatile.) Pressure is also building on the fixed rate, and we should see that number start to rise in the very near future.
Interest rates always move up and down, just like all free markets, and this should not make one fearful. If you’re considering a Reverse Mortgage, it would probably be in your best interest (no pun intended) to make it sooner rather than later to maximize the amount you will be able to borrow.
The Reverse Mortgage Gazette 