A reverse mortgage interest rate on an adjustable HECM is set as 1-month CMT plus lender margin for what you actually accrue, while leftover cash is sized with a different rate: 10-year CMT plus that margin, rounded to the nearest 0.125% under 24 CFR 206.3. Jay Zayer, CRMP, is a reverse mortgage specialist at reversemortgage.coach. Mixing those two numbers is how people think a teaser “is” the loan. See how interest is calculated month to month for accrual arithmetic. Stay here for how the rate is chosen before anyone closes.
Walk through this example: Pearl, 67, occupies a house in Fresno, California, and a radio ad quoted a short-term index as if it were leftover cash. It was not. Run the leftover-cash worksheet with a named expected-rate assumption. Do not interpolate HUD rows.
A HECM remains FHA-insured. The index is not a public coupon you pick from a menu.
Who actually picks the margin, and what does that margin change?
The lender picks a margin inside HUD and investor overlays. Expected rate = 10-year CMT + margin, then HUD rounds to the nearest 0.125% (24 CFR 206.3). That rounded expected rate chooses the principal-limit factor. The note rate = 1-month CMT + the same style of margin (plus any note-level adjustments the program uses). A lower margin can raise leftover cash and change accrual. It is not free. Origination is still capped at $6,000 under 24 CFR 206.31. Initial MIP is still 2.00% of claim amount (Mortgagee Letter 2017-12).
Pearl’s leftover cash still lands in a mid-30s to low-50s percent of appraised value, depending on age and that expected rate. I will not quote a live PLF percentage. Counseling still costs $125–$175. Pearl still has to wait Civil Code 1923.2(k)‘s seven days in California before a complete application is accepted.
Annual MIP of 0.50% of outstanding balance still accrues on top of the note rate. It is insurance, not index.
How is 1-month CMT different from the 10-year figure that sizes the loan?
1-month CMT moves the note. 10-year CMT plus margin, rounded, sizes leftover cash at origination and does not re-size every month. This site’s published worksheets use a 7.000% expected-rate assumption as of 22 September 2026, built from FRED 10-year CMT plus a 2.00% sample margin, rounded to 0.125%. Your file will use the margin on your Loan Estimate. Do not steal the site’s 7.000% as if it were Pearl’s lock.
A second geography: a 74-year-old in Prescott whose Arizona shop quoted a different margin. Same 24 CFR 206.3 rounding. Different leftover cash. Same 2026 claim-amount cap of $1,249,125 in Mortgagee Letter 2025-22.
If residual income requires a LESA, that set-aside is origination-only. Jay confirmed it cannot be modified after closing. A LESA does not change which CMT tenor you accrue on.
I still mention ~30 days as my average close on a complete refinance; rate movement during that window is an overlay question. Rate movement during that window is an overlay question — see rate lock. I will not invent a lock period HUD does not publish.
What caps sit on an adjustable HECM, and what sits on a fixed HECM?
Periodic and lifetime caps are in the note and the program, not in a seminar. A fixed HECM uses the note rate as expected rate under 24 CFR 206.3. Most files I originate are adjustable because leftover cash and a line of credit are the point. Proprietary notes Jay closes — HomeSafe, Longbridge Platinum, Finance of America, Mutual of Omaha Secure Equity — set rate under the private overlay. They are not FHA-insured.
If Pearl’s heirs later keep the Fresno house, 24 CFR 206.125(a)(2)(i) still names the outstanding balance, including every month of 1-month CMT-plus-margin accrual.
What periodic cap actually sits on the ARM notes I originate?
Caps are in the note and the investor overlay, not in 24 CFR 206.3. I will not invent a lifetime cap as HUD law. Read Pearl’s note. Periodic caps limit how fast 1-month CMT plus margin can move. They do not freeze expected rate. Expected rate already sized leftover cash at origination. After closing, she accrues the note rate plus 0.50% annual MIP of outstanding balance.
A fixed HECM uses the note as expected rate. Most files I originate stay adjustable because a growing unused line is the point. If Pearl wanted a fixed check of cash, tenure or term on an ARM is usually the better machine than a fixed-rate HECM that kills the line. Compare leftover cash, not a teaser index from a radio ad.
Who should not treat a seminar teaser as the expected rate that sizes leftover cash?
This path does not help a household that wanted last week’s 1-month printout as if it were a HUD factor. Occupancy is still 24 CFR 206.39. I work with multiple lenders. I will originate when leftover cash after 2.00% of claim amount is worth the accrual. I will turn away a teaser-as-PLF plan whose only thesis is a radio number.
If leftover cash after costs is decorative at a honest expected rate, skipping the HECM is the rate decision that matters. The index will not rescue a thin file.
Pearl should keep 1-month CMT-plus-margin in one column and 10-year CMT-plus-margin rounded to 0.125% in another. Mixing them is how a Fresno radio teaser becomes a fake HUD factor. Annual MIP of 0.50% of outstanding balance is a third column. I originate when leftover cash works at the honest expected rate.