The rates and limits for Reverse mortgages are a little complicated. it took me a while to figure them out. Most of you won't really care about how they are calculated, just what they are. In the interest of full disclosure, I will explain how they are determined.
Short rates are used to determine the rates for the actual rate on the loans and long rates are used to determine their limits. Here are some examples:
The one month CMT rate (about 1.8%) plus a margin (between .125 and 2.00 percent) is used to determine the standard monthly Treasury Home Equity Conversion Mortgage (HECM)
The ten year CMT rate (about 4%) is used to determine the pricipal limit through a complicated calculation.
The One Month LIBOR (about 2.4%) plus a margin (between .75 and 1.25 percent) is used to determone the rate for a standard LIBOR based HECM
For this same loan, the 10 Year swap rate (about 6.3%) is used to determine the Principal Limit through a complicated calculation.
The Principal limit is governed by a Hud mandated floor that causes the limit to go no higher even when rates go lower. Most products are at that floor now and won't get any better until the new laws take effect and raise the limits.
In summation; when long rates go lower, limits increase (but may hit a floor rate and can get no better) and when short rates go lower, rates improve and less interest accrues on the loan.
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