The reverse mortgage rate month: October 2024

When older homeowners want to access some of their equity, there are several options.

Naturally, selling the home is generally not desirable. A cash-out refinance is also not a wise path for retirees. A refinance not only saddles the homeowner with a required monthly payment, but will typically result in a higher interest rate for those who have refinanced within the last decade.

The Home Equity Conversion Mortgage (HECM) and the Home Equity Line of Credit (HELOC) remain the top options for older homeowners looking to use their home equity to create more liquidity during retirement. Let’s define and compare them.

HOME EQUITY CONVERSION MORTGAGE (HECM): The HECM offers homeowners age 62 and older the opportunity to leverage a portion of their home’s value without a monthly principal and mortgage interest charge.* Many HECM borrowers leave a portion of their available funds in an open line of credit .

HOME EQUITY LINE OF CREDIT (HELOC): The HELOC has no age requirement and is offered through lenders and local banks. It also allows the homeowner to withdraw some of the home’s value, but only for a certain period of time. Monthly mortgage principal and interest payments are also required.

Main differences

Both products give homeowners the opportunity to borrow a portion of the home’s value while continuing to own and live in their home. Both will also charge interest on the loan amount, but that’s where the similarities end.

The HECM has higher initial costs, although almost all of these are included in the loan. From there, the HECM will have the benefits of a traditional HELOC, plus some key benefits listed here:

• The HECM currently offers lower interest rates
• The HECM does not require monthly mortgage principal and interest payments*
• The maturity date of the HECM is 150 years, as long as all loan conditions are met
• The HECM line of credit cannot be frozen, reduced or eliminated if home values ​​decline
• The HECM line of credit grows at the same rate as the loan balance, increasing borrowing power

With its flexible repayment structure, the HECM is the option that generally makes sense in retirement. It gives retirees the control, independence and security they need. Additionally, setting up the reverse mortgage line for early retirement allows the unused funds to experience growth that will become more important as the borrower ages.

October 2024 update

Since my last rate update in September, the 10-year CMT weekly average, which calculates the expected HECM rate, has risen 29 basis points. We add the new weekly average (4.06%) to the lender’s margin, resulting in an effective expected rate for new HECM applications from October 16 to October 21, 2024.

The weekly average CMT over one year is added to the lender’s margin and used to calculate accrued interest. You will notice that the 1-year CMT is right at last month’s level. The difference between the 10-year and the 1-year interest rate has therefore become smaller. It appears that the interest rate inversion we have seen since July 2022 will soon come to an end.

*Borrower must continue to pay all property expenses, including property taxes, homeowners insurance, HOA dues and more.

Images by Dan Hultquist. This column does not necessarily reflect the views of HousingWire‘S Reverse mortgage daily and its owners.

To contact the author of this story: Dan Hultquist at [email protected]

To contact the editor responsible for this story: Chris Clow at [email protected]