December 20, 2016 by HECM Pro
The HECM reverse morgage industry is a relatively small niche of the broader mortgage industry, so it’s not quite as easy to find current HECM interest rates online as it is for traditional forward mortgages.
That said, if you’d like to get a rough idea of current HECM interest rates without actually calling a lender, there is a way you can do that. Keep in mind that actual lender interest rates can vary, so if you want an actual rate quote, you’ll need to call some reverse mortgage lenders.
How HECM Interest Rates are Determined
There are two main HECM reverse mortgage programs available today: the variable-rate HECM and the fixed-rate HECM. The variable-rate HECM has an interest rate that can change periodically, but it’s typically lower than the interest rate for the fixed-rate HECM.
The fixed-rate HECM offers a rate that never changes for the life of the loan, but expect to pay a premium for the added security.
Interest rates for the adjustable-rate HECM consist of an index (typically the 10-year swap rate) plus a margin that can be 1.50% to 2.50% depending on the loan scenario and the lender you’re working with.
For example, if the index is 2.50% and the margin is 2.00%, then the total fully-indexed interest rate would be 4.50%. If the index is 3.00% and the margin is 2.25%, then the fully-indexed rate would be 5.25%.
Lenders have some discretion to set their margins, so if you’re shopping around for HECM rates, feel free to negotiate the margin. Keep in mind that lenders make their money based on the margin, so if you negotiate a super low margin, you may be asked to incur more of the closing costs. If you’re willing to take a higher margin, the lender may be willing to cover more of your closing costs.
It’s a good bet that most lenders charge around a 1.50% t0 2.50% margin, so you can get an idea of current adjustable-rate HECM rates by simply adding that margin to the current 10-year swap rate.
If you’d like a more exact estimate, it’s best to call a few lenders and get an actual rate quote.
Interest rates for the fixed-rate HECM aren’t as easy to estimate because they’re not based on a widely available index. They’re typically based on what investors are demanding to lend money via the fixed-rate HECM reverse mortgage program.
I can tell you that fixed-rate HECM rates are probably 0.50% to 1.00% higher than a comparable variable-rate HECM. There may be some room to negotiate the rate, so feel free to ask.
Again, if you’d like to get an actual rate quote, the best thing to do is simply call a few lenders.