Continuing our tour of the Reverse Mortgage terminology there are a few INTEREST related phrases that are good to know. Although all these phrases may not come up for everyone, if you’re shopping around or learning more about the process, you may run across a few of them.
The CMT Rate is the Constant Maturity Treasury Rate and is used as an interest rate index in the HECM program; while the Maturity is when the loan is due and payable. An Acceleration Clause refers to this point by stating in the contract when a loan may be considered due and payable.
There are quite a few words used to talk about interest such as adjustable and current and expected. All of them refer to something a little bit different. If you choose a reverse mortgage with an Adjustable Rate, that would mean it would change based on the published market rate index. A Cap would be the limit on how much an adjustable rate is allowed to go up or down during a defined period of time.
An Initial Interest Rate (in the HECM program,) is the rate used to determine your loan advance amounts. It will equal one of two things, either a ten year LIBOR rate with a margin or a ten year CMT, Constant Maturity Rate. The LIBOR is the London Interbank Offered Rate and is often used as an index for interest in the HECM program.
Your Current Interest Rate in the HECM program is self descriptive. It refers to the rate of interest currently being charged on the loan.
The last significant term relating to interest is the Expected Interest Rate. This rate equals one of two things. It is either a 10-year CMT or a 10-year LIBOR and is used to determine a borrower’s loan advance amounts. To help determine the Initial, Current and Expected Interest Rates a Margin is added, this is a defined amount.
Seniors 62 and over may be eligible for a reverse mortgage or a reverse mortgage for purchase by utilizing the equity many already have in their homes. Funds can be accessed in different ways including a monthly installment or a line of credit. The homeowner will always retain the title to the home and will live mortgage payment free, and it’s common misconception is that the home will be lost after you pass. With proper education via required third party counseling and retirement planning, this does not need to be the case.
If you have any questions about any of these terms, please don’t hesitate to contact me.