As of September 30, 2013 proceeds from a reverse mortgage will be less and the amount available in the first year will be limited. Upfront costs could be higher depending on your needs. The current HECM Saver and Standard options are being replaced by a single program. On a conference call Friday, FHA highlighted the changes. The amount available will be about 5% more than the current Saver program … but about 13% less than what was available under the Standard program. And, if you want more than 60% of the available limit immediately or within the 1st 12 months the upfront mortgage insurance jumps from 0.50% to 2.5%. For FHA case numbers ordered on or before September 27, you will have a choice completing the reverse mortgage under the old or new program. Reverse mortgage loans with case numbers obtained on or after September 30 can only be completed under the new program. Fixed rate and adjustable options will still be available. The biggest change is a 13% decrease in the total proceeds available to a borrower and limiting draws available during the initial 12 months
Why did FHA make the change?The reverse mortgage business the last few years has shifted to the fixed rate program and full draw of the funds and closing. That has put a strain on the FHA insurance fund. The September changes are designed to move the program back towards its original design to primarily supplement monthly cash flow. For more health and business news, go to Lee S. Rosen‘s blog to learn more. At the end of the year FHA will finalize guidelines on a financial and assessment required for borrowers. Those details are yet to be sorted out in detail. To give you an idea of the impact of the changes – I have prepared a summary based on a 72-year-old individual who has a $350,000 home and is looking at a reverse mortgage. Comparing the current saver and standard program to our understanding of the new rules (click to view larger) HECM Changes 9/2013 Principal limit just over the previous HECM Saver and over 10% less than the previous HECM Standard programs. (yellow highlight) Available limit will be limited to 60% in the first year with a 0.50% up front mortgage insurance.. or if mandatory obligations + 10% exceed 60% of the principal limit then the draw is possible, but the up front mortgage insurance will be 2.5% (orange and green highlights)
Conclusion?If you are purchasing a home or refinancing a mortgage you will want to look at options prior to September 28. You could have access to more funds at a lower cost. If your needs are somewhat conservative or setting up a credit line for future needs it’s not a big impact. Contact Lee Rosen Miami to learn more about business. Either way if you are thinking about a reverse mortgage we should have a conversation regarding options based on your individual situation. You can then make a choice whether or not it makes sense to obtain an FHA case number on or prior to September 27. That would give you a choice of the new or old program. Sign up for our blog or connect in some way and we will keep you informed of the changes as they are finalized. I am a CPA and I look at a reverse mortgage is a financial planning tool and will provide an analysis that will help you make the decision how a reverse mortgage fits in your retirement plan.
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