Sep 15, 2017

Reverse Mortgage Borrowers Face New Rules Effective October 2, 2017

The Trump Administration has rolled out new rules for federally backed HECM (Home Equity Conversion Mortgage) reverse mortgages.  The new rules go into effect October 2, 2017 and will affect new borrowers only. A reverse mortgage allows a person age 62 and over to borrow against his/her home’s equity without having to pay back the loan until the borrower moves, passes away or sells. Many seniors with equity in their homes turn to reverse mortgages to generate needed cash in retirement.

For the typical borrower, the new rules increase the upfront cost of the loan while decreasing the amount of funds available. The main changes are:

  • The initial mortgage insurance premium for all borrowers will be 2%. Prior to the new rule, borrowers tapping less than 60% of home equity in the first year paid an initial premium of .5%, and those borrowing more than 60% paid 2.5%.
  • For all borrowers, the ongoing annual premium will drop  from 1.25% to .5% of the outstanding mortgage balance.
  • The amount that borrowers may access, while still pegged to age and ongoing interest rates, will decline for most. At current interest rates, the average borrower will be able to tap about 58% of the value of the home, down from 64%.

According to the Department of Housing and Urban Development, these changes are needed to ensure the continued viability of the federal reverse mortgage program. Last year, the program was $7.7 billion in the red. Without these changes, a bailout from Congress would be necessary.

Seniors should exercise caution when considering a reverse mortgage. Without sufficient information, a reverse mortgage can place a borrower in significant financial peril. Read more about deceptive reverse mortgage advertising here.

Read more about the October 2 changes to the HECM program here. 

Read HUD information on federally backed reverse mortgages here.

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