Big Changes for HECM Reverse Mortgages October 2nd: Higher UpFront Cost – Lower Limits – Lower Insurance Premiums
Seniors on the fence considering a HECM reverse mortgage line of credit with a zero or low upfront draw may want to act quickly to get their reverse mortgage started before big changes go into effect October 2, 2017.
Three changes will impact the HECM Reverse Mortgage Program for FHA case numbers assigned beginning October 2nd.
Upfront Mortgage Insurance Premium paid to FHA will now be 2.0% across-the-board. Previously borrowers accessing less than 60% of the principal limit only had a 0.5% upfront mortgage insurance premium and those with mandatory obligations over the 60% were charged 2.5% for the upfront mortgage insurance.
Annual Mortgage Insurance Premium accrued on an outstanding balance is reduced from 1.25% to 0.50% which will be a benefit to those borrowers that carry a balance on the reverse mortgage but negatively impact the growth factor used when borrowers obtained a line of credit reverse mortgage.
Principal Limit Factors were adjusted to be more conservative reducing the amount of funds available to an average borrower by about 5%. I will be spending some time looking at the impact by age group and share that a bit later.
The net impact seems intended to discourage the use of a line of credit reverse mortgage. When taken out early on the growth in the credit line if left unused was dramatic and can be an important part of a overall financial plan providing flexibility and security with access to funds well into the future. Increasing the upfront cost; decreasing the growth rate by reducing the mortgage insurance premium; and lowering the principal limit factors all reduce the benefits of a line of credit reverse mortgage.
Seniors on the fence may want to consider acting sooner rather than later. An application and counseling must be completed prior to securing an FHA case number so if this makes sense it would be best to act quickly and get a case number well before September 29, 2017.
To learn more about tips and strategies when applying for a reverse mortgage, I’m available to answer all of your questions. Let’s talk about your goals and perhaps ways that you can take advantage before these changes take place, please give me a call or send me an email: firstname.lastname@example.org
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