Reverse Mortgage Guide

Beginning August 20th you’ll be able to get an FHA reverse mortgage — as HUD calls home equity conversion mortgages (HECMs)– that uses the LIBOR index rather than an index based on Treasury securities.

LIBOR — the London Inter-Bank Offered Rate — is an index widely used in Europe and overseas generally. It tends to track the Treasury securities, but not always, sometimes it’s higher.

The higher LIBOR rate may be attractive in some circumstances because the margin tends to be lower — say 2.25 rather than 2.75 for the Treasury index.

You’ll still be able get an HECM with the index now used by HUD — the weekly average yield of U.S. Treasury securities, adjusted to a constant maturity of one year (commonly referred to as the one-year CMT).

In addition, you’ll be able to use the one-month Constant Maturity Treasury (CMT), the one month LIBOR, and the one-year (12-month) LIBOR.

Is this important?

The LIBOR reflects economics overseas — and economics there may be different than economics here. While the LIBOR and Treasury indexes have closely tracked to this point, there’s no guarantee how any index will act in the future.

As always, ARM indexes are a guess — and now HECM borrowers have more to guess about.

This entry was posted on Friday, July 27th, 2007 at 1:18 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.