1.) The lower the expected interest rate, the maximum amount of proceeds are made available to the homeowner. (Principle Lending Limit)

2.) Over time lower rates can add up to $10's of thousands saved in interest charges

#1 Many "big banks" charge the maximum allowable fees. Although the fees on reverse mortgages are federally regulated, we will NEVER charge you the maximum just because we can. All Reverse Mortgage often can save you up to 50% over what these "big banks" charge.

# 2 Most "big banks" can only offer their own rates, with All Reverse Mortgage we are approved to offer the best of several banks interest rates. The lowest available rate is what we offer you.

Firstly, I say to homeowners Choose the correct option to meet your needs.  You can choose a fixed rate or an adjustable rate and fixed rates sound great, but they are what is called a “closed end instrument” and require the borrower to take the entire loan at the very beginning of the transaction. For borrowers who are paying off an existing mortgage and need all their funds to pay off the current loan, this is no problem. 

For a borrower who has no current lien on their property or a very small one, this would mean that they would be forced to take the entire eligible mortgage amount on the day the loan funds. This might give a borrower $200,000, $300,000 or more in cash from the very first day that they do not need at the time and on which they are accruing interest. This can also have an adverse affect on some seniors with needs-based programs. (Medicaid: Seniors on Medicaid and some other needs-based programs would impact their eligibility by having the sudden addition of the liquid assets)

A borrower who is planning on using only a portion of their funds monthly need not pay interest on the entire amount from the very start, eroding the equity unnecessarily fast.  An adjustable rate will accrue interest at a much lower rate at today’s rates, but has a 10% cap and can go much higher if rates rise in the future.

However, the adjust rate program allows for more options for borrowers to receive their money. They can choose a lump sum; a line of credit against which they can draw at any time and which cannot be frozen like many of the bank Home Equity Lines of Credit (HELOC’s) are going through now and which grows on the unused portion annually; a monthly payment for a set term or for life; or a combination of all of the options.

The adjustable rates are currently much more flexible to meet borrowers’ needs. One of the things that can determine the amount for which borrowers will ultimately qualify is the rate at which the loan accrues interest.  When the margins on the adjustable rates were lower and the fixed rate was higher, the adjustable rates gave borrowers more money in their pockets in the form of eligibility. Now, most borrowers we run through the HECM calculator receives more money on the fixed rate program.

This is extremely important to know if you are trying to get as much as possible to pay off an existing lien. It also means that the higher the margin, the less money the borrower will receive and the faster interest on the loan will accrue. So the thing to look for in a reverse mortgage here is definitely the rate on a fixed rate or the margin on an adjustable rate that is being quoted. 

LIBOR stands for "London Inter-Bank Offered Rate."  It is based on rates that contributor banks in London offer each other for inter-bank deposits.  In October of 2007, the U.S. Federal Housing Administration (FHA) ruled in favor of insuring ARM loans based on the one-year LIBOR index. At the same time, HUD also ruled to allow the one-month LIBOR to be used for the purpose of calculating adjustments to interest rates for monthly adjusting Home Equity Conversion Mortgage (HECM). Below is a chart of LIBOR rates for the last 10 years.

LIBOR loans normally have lower margin rates than CMT (constant maturity of U.S. treasuries).  This is particularly helpful to senior borrowers due to the fact that the CMT margin became increasingly less desirable when selling the loans in the secondary markets and the change helped insure the availability of the market for ongoing lending.