HECM Updates: What Do They Mean For New Borrowers?
Like any other government regulated programs, the reverse mortgage industry experiences regular updates as mandated by the Department of Housing and Urban Development (HUD). Our reverse mortgage specialists can answer your specific questions, but this broad overview of the recent changes to the Home Equity Conversion Mortgage program (HECM) will ensure you’re an educated borrower.
In the fall of 2017, HUD announced the new measures, which apply only to loans closed after October 2 of last year.
So, what are these new measures, exactly? And what does that mean for new borrowers?
Initial And Annual Mortgage Insurance Premium Changes
Changes to the Mortgage Insurance Premium (MIP) are a bad news/good news situation. For some the initial MIP will be lower, and for some it will be higher. It will be higher for those that are taking less of the money available and lower for those that are taking a large part of the money available. The premium will be a flat two-percent applied to all loans as opposed to the varying rates tied to loan amounts previously. Bottom line: Your upfront costs could be lower or higher than before, depending on your situation.
Good news: The ongoing, or annual MIP costs are actually going down to 0.5%, which means you’ll pay less year after year. Another benefit of the lower annual MIP is that it “preserves more equity for borrowers over time by slowing the rate at which the loan balance grows,” according to HUD. Over time, this improvement can more than make up for any higher upfront MIP cost that may occur.
In a nutshell, according to a HUD.gov fact sheet, “new HECM Borrowers will pay lower annual premiums partially offset by higher up-front premiums.”
Principal Limit Changes:
Changes were also made to the principal limit, also known as the credit limit or maximum amount a borrower can take out on a reverse mortgage. So initial loan amounts have been reduced. At current interest rates, borrowers can generally utilize somewhere between 40% to 70% of the value of their home depending on their age.
All in all, the changes amount to an increase in closing costs for some borrowers, and tightened lending limits on reverse mortgages.
We know when it comes to reverse mortgages the fine print is important, and it’s our job to keep you educated. Contact us today, and we’ll answer any individual concerns or questions you may have about a reverse mortgage.
Things to know about Reverse Mortgages:
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment
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