Feds Making Some Changes to Reverse Mortgages

With the mortgage industry in the trouble that it’s in right now, reverse mortgages are becoming more attractive to some older homeowners who are over the age of 62. And now that the federal government has offset the rising costs of insurance premiums for reverse mortgages, these mortgage products are getting even more attention as a way for older homeowners with huge amounts of equity built up in their home to get a break from the pressures of paying a monthly mortgage payment.

The Department of Housing and Urban Development, or HUD, created another type of reverse mortgage which takes into consideration the high costs of the insurance premiums. It is called the Home Equity Conversion Mortgage Saver and it greatly reduces the upfront costs associated with a reverse mortgage. These upfront costs and fees are similar to those of buying or refinancing a home and they include paying for an appraisal, origination fees and more. Homeowners are also responsible for mortgage insurance premiums during the term of their reverse mortgage as well.

Last week, however, those monthly premiums nearly tripled when they went from 0.5 percent to 1.25 percent. The huge increase was the result of wanting to protect taxpayers and the federal government from massive payouts because of the declining home prices across the country.

The new reverse mortgage product greatly reduces some of these fees and premiums. For instance, those who take out a standard reverse mortgage would be responsible for paying an upfront insurance premium that is equal to 2 percent of the value of their property. For every $100,000, this would be about $2,000. With the new Home Equity Conversion Mortgage Saver, however, this fee could drop as low as $20 for the same property. There is a catch, though. Homeowners who choose the new reverse mortgage product are not allowed to borrow as much money as they can with the traditional reverse mortgage. For example, if your home is worth $200,000, you may only be allowed to borrow about $90,000 rather than the $116,000 you would be able to borrow under the old reverse mortgage product.

The best thing to do is to consult with a trusted mortgage broker and some family members or friends who know about the mortgage industry. In some cases, a traditional reverse mortgage may be the best financial option for you despite the fact that you have to pay higher upfront fees. And as always, shop around for the best mortgage lender when choosing a reverse mortgage. Companies are competing for your business these days and shopping around for the best deal is the only way you are going to come out ahead in any mortgage deal.