Recently the Reverse Mortgage (also known as home equity conversion mortgage, HECM) market has added a new index to the available options. You now have a choice of the index for your loan.
Lets start by analyzing what the index is. The index determines the monthly interest rate for the life of the loan. Each month the index changes. It is a published financial indicator that is used in the markets. The current choices for HECMs are the 1 Year CMT – the Constant Maturity Treasury Index or the new 1 Month LIBOR – the London Inter Bank Offered Rate.
These rates are published on a regular basis and if they go up, your rate goes up. If they go down, your rate goes down. This is the “horse you are hitching your wagon to.” Your interest rate will go wherever these rates go. Unfortunately there is no way to know how an index is going to perform in the future. We can however look at the historical values of these rates and examine current market factors that could affect them in the future.
For more details, feel free to contact us.