Moving Forward Following LIBOR's Exit
One of the longest running rates is on its way to fizzling out by 2021 and it will have an effect on reverse mortgages. LIBOR or London interbank offered rate, went from being incorporated as an interest rate to a balancing tool. Now, the finance world will have to find a way to move on without it.
"LIBOR has served as the backbone of adjustable-rate Home Equity Conversion Mortgages for nearly a decade, forming the benchmark for expected rates and rate adjustments," according to Reverse Mortgage Daily.
"And with ARMs now dominating the HECM space, the shift will eventually have a major effect on the way reverse lenders do business."
According to the report, lenders will need to adopt a replacement rate for LIBOR. Thankfully there is plenty of time to do so. There is also the Constant Maturity Treasury rate that would be able to stand-in until a more suitable rate is agreed upon.
You can learn more about LIBOR's exit by clicking on the image above.