How Your Interest Rate Is Set
Index Plus Margin, Explained Simply
JP Dauber · Licensed HECM Specialist
NMLS# 386298 · Published August 24, 2026
Index plus margin
Every adjustable reverse mortgage rate is an index plus a margin. The index is a published market rate — for HECMs, a Constant Maturity Treasury rate — that rises and falls with the broader market. The lender does not set it.
The margin is the lender's markup, set at closing and fixed for the life of the loan. So while the index moves, the margin stays the same. This is one place where comparing lenders pays off.
Adjustable vs. fixed
An adjustable-rate HECM lets the rate change as the index moves, and it unlocks the flexible payout options — the line of credit, monthly payments, and the growth feature.
A fixed-rate HECM locks one rate for life but requires a single lump-sum draw at closing. The certainty comes at the cost of flexibility.
Two rates, two jobs
This trips people up: a HECM actually involves two related rates. The initial rate (sometimes called the note rate) is what accrues interest on your balance month to month.
The expected rate is a separate, longer-term figure used at closing to calculate how much you can borrow. A lower expected rate generally means a larger principal limit.
Key fact
The margin is the part the lender controls, and it's locked for the life of your loan. Two lenders quoting the same index can offer different margins — so comparing the margin, not just the headline rate, is how you compare reverse mortgage offers fairly.
Why the rate affects how much you get
Lower expected rates produce higher principal limit factors, meaning you can borrow more of your equity. Higher rates shrink that amount.
That is why the same home and the same age can yield different loan amounts depending on where rates sit when you close.
Rate caps on adjustables
Adjustable HECMs include caps that limit how far the rate can move, protecting you from runaway increases. Your loan documents spell out the periodic and lifetime caps.
Want to see how today's rates translate to your borrowing power? Try the calculator or reach out for current numbers.
Keep reading
The complete guide
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