Long-term rates rose materially last week and the average HECM borrower will receive $2,750 of initial benefit. The good news is that a 3.50% margin CMT HECM is right at a break point. A 3.51% margin would pay another $2,750 less.
This week, only Treasury-based HECM’s with a margin of +263 or less can pay the HECM maximum Principal Limit. Ditto for LIBOR-based HECM’s with margins of +247 or less. Current margins are higher than these figures. This week fixed-rate HECM’s range from 5.56% to 7.250% so we explore the range of benefits.
Using this week’s rates, the first table shows max rates or margins before the next drop in the Principal Limit factor. The percentage drops in the table are for a 74-year old borrower (the HECM average). A 5.81% fixed-rate HECM gives 3.00% less than the maximum HECM benefit. A 5.93% fixed-rate HECM would give 4.4% less.
To be equivalent to a 5.81% fixed-rate HECM, a Treasury HECM would need a margin equal to or below 2.88%. Another example — to be equivalent to a T+300 HECM, a LIBOR HECM would need a margin equal to or below 2.84%.
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