Changes in Reverse Mortgages for Senior Borrowers

For older homeowners who are potentially in need of additional income, a reverse mortgage is a stitch that saves time. Reverse Mortgage allows them to take the equity out of the house through lump-sum withdrawals. How will the new changes affect such consumers?

The recently announced plans by the Department of Housing and Urban Development (HUD) includes plans to raise premiums and place tighter loan limits. As of late, the Department has been under scrutiny due to the high risks associated with reverse mortgage programs.

The reverse mortgage program was created for seniors aged 62 or older still living in their home. Reverse mortgage borrowers are not obligated to pay off the loan unless they sell the house, move or in the event of death.

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Various Reverse Mortgage Changes online payday loans texas

It is important to learn more about these reforms in the reverse mortgage program before considering getting one:

  • Most new borrowers in the reverse mortgage program will pay bigger premiums upfront and lower premiums over life, thus lessening the risk of taxpayers if they live longer than predicted.
  • Borrowers in the reverse mortgage program will now pay an upfront 2% of the amount of the home’s value and 0.5% annually over the course of the loan.
  • Most seniors will also be able to borrow less money in the reverse mortgage program. The current reverse mortgage borrower will be able to borrow roughly 58% of their home value.

To receive money to help them afford a decent place to age, most seniors who would like personal loans in the form of reverse mortgages will now face stricter limits on how much cash they can draw from their homes.

These changes in the reverse mortgage program by the Department of Housing and Urban Development will not affect people with existing reverse mortgages.

Federal officials argue that these changes in the reverse mortgage program are necessary to ameliorate the financial health of the program, which has suffered losses in recent years. Thus, the reverse mortgage program can no longer remain viable in its present form.

Various factors determine the amount an applicant for the reverse mortgage program can borrow such as:

  • their age
  • home value
  • interest rate

Ever since the program began in 1989, the federal government, officially called the home equity conversion mortgage, has issued more than 1 million reverse mortgages. Participants must be at least 62 and own their homes or have small loan balances.

Benefits and Drawbacks of a Reverse Mortgage

One of the main advantages of reverse mortgages is that it opens up access to a liquid source of funds without the need for monthly repayments. As opposed to traditional mortgage loans, reverse mortgage loan borrowers can use their loan to pay off a traditional forward mortgage completely.

The relaxed underwriting standards also make it easier for consumers to qualify for a reverse mortgage loan. Money obtained from reversed mortgages can be used for any purpose.

The major drawback is that the process of getting a reverse mortgage loan can be an expensive one. This is due to higher fees, and third-party closing costs such as appraisal reacted expenses.