Question:

What index is the HECM rate based on?

Answer:

HECM rate was based on the CMT index for a long time. However, currently HECMs are based on both CMT (Constant Mature Treasury) and LIBOR (London Interbank Offered Rate). The usage of the LIBOR index was approved by the Department of Housing & Urban Development (HUD) in July 2007.

The HECM rate before the mortgage crisis was usually based on the CMT plus a margin of 150 basis points. Currently, more flexible HECM products have been developed using a 100 basis point margin. If the LIBOR index was not introduced as an alternative to the CMT, lenders and brokers' compensation would have been negatively impacted.

The LIBOR index allows the HECM rate to use 100 basis points margin and still lenders work will be rewarded adequately. The introduction of the LIBOR-based HECM allows for less volatility in the reverse mortgage market and greater compensation for brokers and lenders, and yet clients are offered low HECM rate as with the 100 points margin, for example.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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