Recent changes to federal laws concerning reverse mortgages could help simplify the process for many older homeowners. Reverse mortgages are loans that let borrowers aged 62 or older borrow against their home and don't have to be paid back until the homeowner moves or dies. These typically carried high upfront fees due to the leniency of the process to pay them back, but that may be changing soon due to an option known as the HECM Saver.
This new option cuts the initial insurance premium of a reverse mortgage from 2% to 0.01% of the home's value. The change helps drastically with managing costs of a reverse mortgage because the insurance premium charge is typically one of the biggest costs when obtaining such a loan. The difference in interest may not seem too significant when one first looks at it, but it actually has a great impact when considering the logistics of owning a home. For example, it would change the insurance premium from the outset of the loan on a $400,000 home from $8,000 to $40. This is especially helpful to older homeowners who are taking out the loan, as they are usually facing some financial difficulty to be taking out the reverse mortgage in the first place.
In addition to these changes that ease the costs of obtaining a reverse mortgage, there are also new steps to ensure that those who take out such a loan need it and can afford to repay it. These steps are taken in the wake of the housing crisis that started the ball rolling for the worst recession the nation has seen since the Great Depression, and they are designed to prevent the same kind of risky borrowing that led to that market's collapse over two years ago. The new rules now require counseling for potential borrowers, which will closely examine if the borrowers truly need to take out a reverse mortgage, whether they understand it and determine ensure that they can afford to stay in the home after they have taken on such a financial responsibility.
In cooperation with such changes in federal rules, banks are also agreeing to cut fees which can add up for borrowers taking out reverse mortgages. The traditional reverse mortgage, known as HECM Standard, carries the 2% upfront premium, origination fees that can total $6,000 and closing costs that include an appraisal and title insurance. This is changing, however, as some lenders have begun to pay more than half of the initial premium and waive the origination fees. The lender directory reversemortgage.org is a good starting place for those looking at what the best deal is for them.
The new fee structure has reduced many of the costs of obtaining a reverse mortgage, which could make the process far more appealing to the average homeowner. The upfront fees have deterred many seniors from looking at such loans in the past, despite the fact that these loans are specifically directed at the older homeowning population. Though the new rules make it far more attractive and feasible to many, it is also necessary to consider that there are downsides to the HECM Saver; for example, the amount one can borrow as a function of the borrower's age and home value is lower than it is under the HECM Standard. Still, if one is interested in a reverse mortgage, they should weigh the benefits of each as well as consider the overall risk one takes with obtaining a reverse mortgage, just like a borrower does by taking out any type of loan.
As always, it is best to consult an attorney when making any serious decisions about your home and financial future. Here at P&P, we can use our 24 years of combined real estate experience to guide you through the homeowning process, from purchase and sale agreements to bankruptcy and foreclosure prevention procedures such as loan modification and short sale. Contact us today to schedule a free appointment and see what option is best for you when making your next major real estate decision.
