The HECM reverse mortgage program continues to evolve and adjust to ensure it will meet the needs of Seniors in their retirement. The upfront mortgage insurance is now 2% for all loans, and the annual mortgage insurance on outstanding balances is reduced to 0.500%.
The mortgage insurance benefits the homeowner in the event the loan balance at payoff were to be more than the future value of the home. That same protection applies to the investor and results in low interest rates and margins because they are certain to receive the principal and interest return due when loan is paid off.
Available funds in the first year are limited to mandatory obligation PLUS 10%. Mandatory obligations include the existing mortgage (refinance) or the purchase price (purchase transaction).
Careful planning will be important to optimize your benefits and reduce your costs. Options to receive proceeds from your reverse mortgage include monthly payments, a lump sum payment, a line of credit or a combination of the three. Funds are advanced to the borrower and interest and mortgage insurance will accrue on the outstanding balance monthly.
A reverse mortgage is due when all borrowers no longer live in the home. At no point will the borrower owe more than the current value of their home. If the loan balance were to exceed the value of the home, FHA insurance fund – not the borrower or their estate – pay any shortfall. As always with a reverse mortgage, there is no risk of passing the mortgage debt to heirs, however, all equity that is available once the loan has been repaid is available to the estate or borrowers.
A certificate of occupancy is no longer required prior to starting the process when purchasing a newly built home. A new home can close shortly after completion as with traditional financing. This had been a significant impediment to purchasing a newly built home because new owners and builders didn’t want to wait 30 to 45 days after the home was completed to finalize the transaction.
A non-borrowing spouse or owner can remain on the title along with the borrower. They must receive the HECM counseling and sign documentation acknowledging that the property is encumbered by the reverse mortgage. This also allows the non-borrowing spouse or owner to remain in the home if the borrowing spouse/owner predeceases them. A non-borrowing spouse/owner will lose access to new funds from the reverse mortgage.