For a 70-year-old with a $600,000 home, a 1-point higher expected rate (7.19% instead of 6.19%) cuts the HECM principal limit from $245,400 to $219,000 (HUD principal limit factor tables effective October 2, 2017, checked October 14, 2026; hypothetical margins).
Two rates, two jobs: the expected rate and the note rate
A federally insured reverse mortgage, the Home Equity Conversion Mortgage (HECM), uses two different rates, and offers often blur them.
The expected rate (in the rules, the expected average mortgage interest rate) decides how much you can borrow. It is used to look up your principal limit factor at closing. On a fixed-rate HECM it is simply the fixed note rate. On an adjustable HECM it is the lender's margin plus the weekly average 10-year Treasury constant maturity rate (CMT), or a Secured Overnight Financing Rate (SOFR) index approved by the Department of Housing and Urban Development (HUD) (24 CFR 206.3, Definitions, checked October 14, 2026).
The note rate is the interest actually charged on what you owe. On an adjustable HECM it moves with a shorter index: the 1-year CMT, the 30-day average SOFR, or another SOFR index HUD approves, plus the same margin (24 CFR 206.21, Interest rate, checked October 14, 2026).
So a higher expected rate means less money available, and a higher note rate means the balance grows faster. Both start with the margin, which is the one number the lender sets.
The index values, dated
Indexes are public. On October 14, 2026 the 10-year Treasury rate was 5.19% and the 1-year rate was 4.53% (U.S. Treasury, Daily Treasury Par Yield Curve Rates, October 14, 2026). Lenders use weekly averages, which differ a little from any single day. These numbers move every business day, so treat them as a dated example, not a current offer.
With a hypothetical 2.00% margin, the expected rate would be 5.19% + 2.00% = 7.19%, and a starting annual-adjustable note rate tied to the 1-year index would be 4.53% + 2.00% = 6.53%. We use a hypothetical margin because we have no verified public source for typical lender margins. Get each lender's margin in writing.
Fixed rate or adjustable: the choice that changes the most
A fixed-rate HECM comes with only one payout: a single lump sum at closing (24 CFR 206.19, checked October 14, 2026). The rules also say that on a fixed-rate HECM no more money can be drawn after closing (24 CFR 206.3). And the lump sum is limited to the greater of 60% of the principal limit, or your mandatory obligations, such as paying off an existing mortgage and closing costs, plus 10% of the principal limit (HUD, Mortgagee Letter 2014-21, November 10, 2014). Whatever is left above that is simply not available to a fixed-rate borrower.
An adjustable HECM can pay a line of credit, monthly payments for a set term or for as long as you live in the home, or a mix (24 CFR 206.19). Annual-adjustable loans can change by no more than 2 percentage points at each yearly adjustment and 5 points over the life of the loan; monthly-adjustable loans have a lifetime cap of 10 points (24 CFR 206.21, checked October 14, 2026).
Line of credit growth: real, and often oversold
On an adjustable HECM, your principal limit grows every month at one-twelfth of the note rate in effect plus one-twelfth of the annual mortgage insurance rate, and that increase can be made available to you (24 CFR 206.3, checked October 14, 2026). The annual premium is 0.5% (HUD, Mortgagee Letter 2017-12, August 29, 2017). In practice, the unused part of a credit line grows at the same rate your loan balance would.
Hypothetical: an unused line of $100,000 at a note rate of 6.53% plus 0.5% would grow to $141,974 in 5 years and $201,566 in 10 years if the rate never changed. That is borrowing room, not savings. Every dollar you later draw from it is a loan that keeps compounding, and a falling index would slow the growth.
When it can make sense, and how to compare offers
An adjustable line of credit can suit someone who wants a standby source of cash for later years and may not touch it soon. A fixed rate can suit someone who needs one lump sum now, for example to pay off an existing mortgage, and wants a rate that never changes.
Compare offers on the same day, for the same loan type: the margin, the index, the expected rate, the principal limit, and the upfront costs. A lower margin with a higher origination fee can be better or worse depending on how long you keep the loan. Our reverse mortgage costs page shows the fees. A HUD-approved counselor can review offers with you; find one through the Consumer Financial Protection Bureau (CFPB) housing counselor search.
A plain example: what a 1-point change in the expected rate does
Hypothetical: a home appraised at $600,000. Each cell shows the principal limit factor from HUD's table effective October 2, 2017, then the principal limit (factor x $600,000) (HUD, HECM Principal Limit Factor Tables, checked October 14, 2026). The table moves in one-eighth-point steps, so our examples use the step at or below the expected rate: 6.125%, 7.125% and 8.125%.
| Youngest borrower's age | Expected rate 6.19% | Expected rate 7.19% | Expected rate 8.19% | Gap, 6.19% vs 8.19% |
|---|---|---|---|---|
| 62 | 0.351 / $210,600 | 0.307 / $184,200 | 0.268 / $160,800 | $49,800 |
| 70 | 0.409 / $245,400 | 0.365 / $219,000 | 0.326 / $195,600 | $49,800 |
| 75 | 0.438 / $262,800 | 0.394 / $236,400 | 0.356 / $213,600 | $49,200 |
| 80 | 0.482 / $289,200 | 0.441 / $264,600 | 0.404 / $242,400 | $46,800 |
Arithmetic for age 70: at 7.19% the factor is 0.365, so $600,000 x 0.365 = $219,000. One point lower (6.19%) gives $245,400; one point higher (8.19%) gives $195,600. That is roughly $26,400 to $23,400 for each point, before any costs come off. The expected rate here is the 5.19% 10-year index on October 14, 2026 plus a hypothetical margin of 1.00%, 2.00% or 3.00%.
Red flags
- Quoting a low "rate" without saying whether it is the note rate or the expected rate.
- Advertising "today's rate" without the index, the margin and the date.
- Refusing to put the margin in writing.
- Pushing a fixed rate without explaining it means one lump sum and no later draws.
- Calling line of credit growth "free money" or "interest you earn".
- Promising the credit line will grow at a set rate for life.
- Comparing a fixed offer to an adjustable one only on the starting rate.
- Saying the rate does not matter because you make no payments.
- Not explaining the yearly and lifetime caps on an adjustable loan.
- Locking a rate before you have finished counseling and compared offers.
Questions to ask before you sign
- Is this a fixed or adjustable loan, and what payout options come with it?
- What is your margin, and which index is it added to?
- What expected rate are you using to figure my principal limit?
- What is my starting note rate, and how often can it change?
- What are the yearly and lifetime caps on rate changes?
- How much could I borrow with a margin half a point lower?
- If I take a line of credit, what rate will the unused portion grow at?
- With a fixed rate, how much of my principal limit will I never be able to use?
- Can I lock the expected rate, for how long, and is there a cost?
- Can you show the total balance after 10 years at this rate?
Long-Term Care and Your Home: Read This Before You Sign
A one-page checklist: what Medicare will and will not pay, the Medicaid look-back and estate recovery basics, the questions to ask before you buy long-term care coverage or take a reverse mortgage, and the tax rules if the house is sold. The rate questions to ask any reverse mortgage lender: index, margin, caps, and fixed vs adjustable. We’ll email it to you.
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Sources
- eCFR: 24 CFR 206.3, Definitions (checked October 14, 2026)
- eCFR: 24 CFR 206.21, Interest rate (checked October 14, 2026)
- U.S. Treasury: Daily Treasury Par Yield Curve Rates, 2026 (October 14, 2026)
- HUD: HECM Principal Limit Factor Tables, effective October 2, 2017 (checked October 14, 2026)
- HUD: Mortgagee Letter 2014-21, Revised Changes to the HECM Program Requirements (November 10, 2014)
- HUD: Mortgagee Letter 2017-12, HECM Mortgage Insurance Premium Rates and Principal Limit Factors (August 29, 2017)
- eCFR: 24 CFR Part 206, Home Equity Conversion Mortgage Insurance (checked October 14, 2026)
- CFPB: How much does a reverse mortgage loan cost? (last reviewed May 28, 2024)
- CFPB: Find a housing counselor (checked October 14, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.