Reverse mortgages have become especially popular in recent years, and for good reason.
Basically, a reverse mortgage lets homeowners live on financial support from the equity they’ve built up in a home. The financial tool allows homeowners to transform their home equity into an annuity, with guaranteed tax-free payments (either monthly or in a lump sum) for an extensive fixed term, while still essentially living in the house rent-free. In exchange, the bank or lender simply waits until after the homeowner’s death to sell the house and recoup principal and interest (unless the homeowner decides it makes sense to pay it off themselves after, say, a market recovery).
In tough economic times where cash is tight, these mortgages can have a “recession-proofing” effect on a homeowner’s retirement.
And now, thanks to a new program launched recently by the Federal Housing Administration, reverse mortgages may have just gotten a bit cheaper.
According to the New York Times:
In October, the Federal Housing Administration, the unit of the Department of Housing and Urban Development that runs the reverse mortgage program known as Home Equity Conversion Mortgage, or HECM, introduced the Home Equity Conversion Mortgage Saver, or HECM Saver.
HECM (pronounced HECK-um) Saver trims the upfront insurance premium due at closing to 0.01 percent of a property’s value, from 2 percent. But the amount that can be borrowed is also reduced, by 10 to 18 percent, compared with the standard HECM loan program.
[...] Reverse mortgages boomed in recent years but then acquired a bad reputation, in part because of their costs. Origination fees for the loans are now capped at $6,000, while other closing costs are about equal to those for a conventional mortgage. Until HECM Saver, the upfront insurance premium was a major additional cost that could run as high as $12,510.
In other words, the new federal rules reduce some of the (formerly painful) initial sting homeowners feel by mandating lower initial premiums and fees. Closing costs are now more or less the same as those for a regular mortgage. The mortgages are easy to qualify for with no minimum credit scores or income limits, but the homeowners can’t be underwater on the homes.
If you think a reverse mortgage might provide a helpful lifeline to your current financial situation, contact our Dallas mortgage experts to get the process started.
Tags: homebuying advice, housing market, mortgages, reverse