Listen To This Article
Most of the time, my friends and family glaze over the minute I bring up interest rates. But lately? Everyone’s listening. Rates are in the headlines, and homeowners want to know: what does this mean for me—especially if I’m considering a reverse mortgage?
Let’s break it down.
Do Fed Rate Cuts Lower Mortgage Rates?
Not exactly. When the Federal Reserve announces a rate cut, many assume mortgage rates will drop in lockstep. But that’s not how it works.
In fact, mortgage rates often rise after a Fed rate cut. Here’s why:
- Mortgage rates track the 10-year Constant Maturity Treasury (CMT), not the Fed funds rate.
- The 10-year CMT is influenced by broader economic factors, not just Fed policy.
- Markets move on expectations. It’s not what the Fed does today—it’s what they signal for tomorrow.
- The market “prices in” cuts early. By the time a cut is official, rates may have already adjusted.
For example, in the 30 days leading up to this week’s 25 basis point cut, the 1-year Treasury yield had already fallen 29 basis points, and the 10-year had dropped 28. The market saw it coming.
Why Lower Rates Matter for Reverse Mortgages
Here’s the good news: when interest rates decline, reverse mortgage applicants usually benefit. That’s because Home Equity Conversion Mortgages (HECMs)—the federally insured reverse mortgages—rely on both long-term (10-year CMT) and short-term (1-year CMT) Treasury rates.
Here are some key concepts:
- A borrower’s “expected rate” (lender margin + 10-year CMT) helps determine how much the borrower can initially borrow.
- The lower the expected rate, the more proceeds available.
For example, when I first began writing this article on Friday, September 12th, a 2.50% lender margin plus the weekly average 10-year CMT provided an expected rate of 6.69%.
The result? One borrower’s available funds increased by $9,075—just from a small rate shift.
What This Means for Homeowners
Lower rates don’t just make headlines—they can directly increase the cash or line of credit available through a reverse mortgage.
If you or your clients have been thinking about exploring a reverse mortgage, now may be a smart time to look closer. Even small movements in rates can open up more options. That could mean more financial flexibility, more proceeds, and greater peace of mind in retirement.