“No one is useless in this world who lightens the burdens of another.”- Charles Dickens
ADDITIONAL CONSUMER SAFEGUARDS FOR REVERSE MORTGAGES
Home Equity Conversion Mortgages (HECMs) are the most common and most popular type of reverse mortgages. HECMs are backed and insured by the FHA to reduce borrower risk, and serve as a useful financial tool for many individuals looking to supplement their retirement income.
Now even more structured with the borrower in mind, the HECM loan is designed to help borrowers, age 62+, convert some of their home equity into cash – so they can live more comfortably and with greater financial independence.
Built into this strategic financial tool are important, recent safeguards for additional security:
- Tightened lending limit helps borrowers preserve revenue steam for better long-term money management;
- The annual mortgage insurance premiums borrowers are required to pay over the course of their loans has dropped from 1.25% to 0.5%;
- The initial MIP required has increased to 2% for all borrowers. However, this represents a reduction for borrowers who take out larger reverse mortgages and were paying a 2.5 percent upfront premium.
Additional Previous Changes for Borrower Security:
- Updated non-borrowing spouse protections;
- Financial assessment helps determine if borrowers are willing and able to meet financial obligations;
- LESA – Life expectancy set asides use HECM proceeds to pay taxes and insurance.
No Monthly Mortgage Payments
A reverse mortgage does not have to be repaid until you sell, move or no longer live in your home.
No Surprise Costs
During the application process, you’ll receive a clear and detailed breakdown of all fees and closing costs, including the total loan costs over the projected life of the loan.
HECMs are non-recourse loans. After the loan is repaid, any remaining equity belongs to you or your heirs. This means that you can never owe more than the value of your home at the time you or your heirs sell your home to repay your reverse mortgage.
With a HECM, the reverse mortgage debt may be satisfied by selling the home to pay the lesser of the mortgage balance or 95% of the current appraised value of the home.
To ensure that you understand all aspects of a reverse mortgage, you’re required to have a counseling session with an independent counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD).
Limitation On Fees
Origination fees are regulated by the U.S. Department of Housing and Urban Development (HUD), and cannot exceed HUD limits. In addition, origination fees and closing costs may be financed as part of the reverse mortgage, so out-of-pocket expenses can be minimal.
No Prepayment Penalty
Although a HECM loan is not due until the borrower permanently vacates the home, it can be paid off at any time, with no additional fees.
Insured by the Federal Housing Administration (FHA) to protect lenders and borrowers alike. This insurance guarantees you will receive your loan proceeds as agreed upon with the lender at the closing of the loan.