A variation in the HECM reverse mortgage was squashed by HUD last week. Introduced by a small number of reverse mortgage lenders in October as a combination of an initial fixed rate draw and fixed rate on a future draw on a line of credit. While that sounds attractive – it was outside of the design of the reverse mortgage program. A future draw at a fixed interest rate could be very nice for a borrower but if borrowing costs were to have risen dramatically and the lender not honor that commitment the responsibility would fall to the FHA insurance fund. Many HECM borrowers feel more comfortable with fixed-rate options however fixed rate HECM require the entire available distribution to be taken at closing which can result in paying interest on more funds than are needed at that time. Recent changes to the HECM program are more conservative and are designed to match the clients needs with the amount borrowed. While these loans do have a variable interest rate, interest is only charged on the outstanding balance much like a line of credit. Quite often the HECM line of credit is left unused but is always available as the need arises whether it’s to handle an emergency, supplement monthly income or one-time expenses. Signet Mortgage Corporation is a member of the National Reverse Mortgage Lenders Association and is licensed in five Western states. We believe the HECM reverse mortgage is best used as a supplement retirement plan to help provide a more secure and flexible retirement. Call us today and let’s talk. No obligation of course but we can help you understand how a reverse mortgage can meet your needs.
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