The expected interest rate, or EIR, is an interest rate value used to calculate the proceeds initially available to a HECM reverse mortgage borrower. The EIR is used solely for calculation purposes. For more detailed information about how the EIR works, check out our article here.
How the expected interest rate (EIR) lock-in works
Per HUD mortgagee letter 2003-16, reverse mortgage lenders “lock in” your expected interest rate for 60 days when you sign your reverse mortgage application.
Reverse mortgage proceeds are calculated based on the age of the youngest borrower (or non-borrowing spouse), your home’s value, and current interest rates, as expressed by the expected interest rate. Interest rates change every day, which means the expected interest rate changes every day as well. This can have an adverse impact on proceeds if rates rise between the time you signed your application and loan closing.
HUD implemented the “lock-in” policy to prevent this from happening. Today, lenders “lock in” your EIR for 60 days once you sign your application. This protects your proceeds even if rates rise.
If rates fall between application and closing, lenders will typically recalculate the reverse mortgage based on the lower expected interest rate, which should increase your proceeds.
If you cancel your application
You will lose your expected interest rate lock if you cancel your application before the loan is complete. If rates rise and you later decide to reapply, your new application will be based on the new expected interest rate. You will not be able to get back the expected rate lock from your old application.
It’s important to note that an expected interest rate “lock-in” is not the same as a rate lock for a traditional “forward” mortgage. There are no rate locks in the reverse mortgage world. Again, the expected rate is used solely for calculation purposes. The “lock-in” is designed to protect the proceeds if interest rates rise between the time you submitted your application and loan closing.