Fixed rate reverse mortgage
The fixed rate programs are specific to each lender and are not indexed to published interest rates. To determine the currently available fixed rate, a reverse mortgage lender must prepare a good faith estimate.
Adjustable rate reverse mortgage
Adjustable reverse mortgages have interest rates that increase or decrease as a market interest rate index changes. The index used today is the LIBOR.
LIBOR stands for “London Inter-Bank Offered Rate”. The LIBOR is a popular alternative to the Treasury Rate (CMT) for lenders because it is an international index rate instead of being a US-focused index.
Interest rate calculation
The total interest rate is calculated by adding the interest rate index plus a margin set by the lender. For example, a HECM CMT 300 refers to the reverse mortgage program that is using the CMT index and a margin of 300. If the CMT index is 2.10% then the total rate is 2.10% plus the 3.00% margin which equals an interest rate of 5.10%.