Seniors sometimes secure and use a reverse mortgage to pay for “in-home” long-term care. Specifically, a reverse mortgage allows a homeowner who is at least 62 years old to use the equity in his or her home to obtain a loan that does not have to be repaid until the homeowner moves, sells, or dies. In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. There are many factors to consider before deciding whether to proceed with a reverse mortgage. Before proceeding with a reverse mortgage, federal law requires the homeowners to meet with a Home Equity Conversion Mortgage (HECM) counselor to help individuals make an independent and informed decision as to whether a reverse mortgage is right for them. While a reverse mortgage may NOT be a viable option for most people, in the right circumstance (after careful consideration of the financial and other factors), some will decide to move forward with a reverse mortgage.
Thus, for those considering, or already moving forward with, a reverse mortgage, understanding the Department of Housing and Urban Development’s (HUD) recently announced changes to the federal reverse mortgage program is critical. Citing the need to put the program on better financial footing, HUD will raise reverse mortgage fees for some borrowers and lower the amount homeowners can borrow.
To start, HUD is changing the mortgage insurance premium fees that homeowners pay in order to obtain a loan. Currently, homeowners pay 0.5 percent of the value of their home as an upfront mortgage insurance premium on smaller loans, but homeowners who take out a loan that is more than 60 percent of their home’s value pay a 2.5 percent premium. The new rule will require homeowners to pay a standard 2 percent upfront mortgage insurance premium. Homeowners considering a large reverse mortgage may want to wait until after the new rules go into effect. To offset the upfront costs, the annual mortgage insurance premium rate will be dropped from 1.25 percent to 0.5 percent.
In addition, HUD is lowering the amount that homeowners can borrow. The average borrower at current interest rates will be able to borrow only around 58 percent of the value of their home, down from 64 percent.
The changes are set to go into effect on October 2, 2017. The changes will only affect borrowers who take out new loans; they will not affect existing loans. The August 29, 2017 Mortgagee Letter announcing these changes can be found at: https://portal.hud.gov/hudportal/documents/huddoc?id=17-12ml.pdf
For additional information regarding reverse mortgages, visit:
The Elder Law Center, P.C. (subsidiary of Mickey, Wilson, Weiler, Renzi & Andersson, P.C., http://www.mickeywilson.com) is located in Sugar Grove, IL, Kane County, in the Chicago Western Suburbs, phone number: 630-844-0065.