Its hard to explain sometimes that the same base rate on a Reverse Mortgage can fluctuate and give you more money that another; it even harder to get a prospective client to believe me when I tell them that.
All other things being equal, prospective borrowers of a Home Equity Conversion Mortgage (HECM) could see as much as $10,000 more in loan proceeds this week when compared to mid-November, 2018. This is based on data provided to RMD by Dan Hultquist, the author of Understanding Reverse and Live Well Financial’s vice president of education and organizational development.
“We have had a two month ‘rate reprieve’ that I think will be coming to an end shortly,” Hultquist said. “The 10-year SWAP Average that determines a HECM applicant’s expected rate is at an 11-month low this week.”
From January to November of 2018, the 10-year SWAP average increased by 0.59 percent, going from 2.67 to 3.66 percent. As of January 8, the rate decreased once again to 2.66 percent, wiping out all of the rate increases over the past year.
“To put that in perspective, with all other factors being equal, a HECM today gives the average new prospect $10,000 more this week when compared to mid-November,” Hultquist told RMD.
Currently, all other factors are not equal due to the partial government shutdown, which has delayed the endorsement of new reverse mortgages. Regardless of that, Hultquist says that new reverse mortgage prospects can still potentially benefit from this lower rate even if their HECM cannot currently be endorsed by the Federal Housing Administration (FHA).
“The SWAP average is a factual calculation, generally on Mondays, and [the Department of Housing and Urban Development] isn’t involved in the expected rate locking process,” Hultquist explained. “Most lenders will lock the expected rate in their system at the time of application. It’s based on the SWAP average of the previous week and the chosen lender margin.”
Presuming that the government gridlock ends at some point within the next four months, the rate should be able to be locked in now. “They don’t even need an FHA case number to lock in a rate. But once they do, the lock is good for an additional 120 days from the case number assignment,” Hultquist said. Data provided by Dan Hultquist.