For years the LIBOR (London Interbank Offered Rate) has been used as the index on HECM (Home Equity Conversion Mortgage) adjustable-rate loans. Because the Financial Conduct Authority (The British regulator of LIBOR) and US government regulators have warned that the publication of the LIBOR is not guaranteed beyond 2021, the need for a new index to replace the LIBOR became evident. Since 2017 the AARC (Alternative Rates Reference Committee) and other financial institutions have been working on finding alternative indices to replace the LIBOR.CMT is commonly known as the Constant Maturity Treasury has been chosen to replace the LIBOR. As of February 2021, HECM ARM interest rates will be based on the weekly average yield on United States Treasury securities adjusted to a constant maturity of 1 year (which we call CMT), plus a margin established by the lender. Historically, the LIBOR and CMT index closely mirrored one another. Over a ten-year period, the indices are close. In fact, the rates for the CMT have been lower during this time frame. I obtained the following chart from a lender’s website.
If you would like to check whether your loan or line of credit may be impacted, you can look at your reverse mortgage loan contract. Your loan contract tells you whether your interest rate is fixed or adjustable. If it is adjustable, the contract should list which index is used to calculate your interest rate.
If you have questions about the impact of this transition on your loan or line of credit, you can call me for more information. I will be happy to quote you on a new HECM (Reverse Mortgage) refinance based on the new CMT.