Reverse Mortgage Program Remains Stable
The Reverse Mortgage loan options, also called a Home Equity Conversion Mortgage (HECM) has gone through a number of significant changes in recent years but a spokesman for the Department of Housing and Urban Development (HUD) confirms that the program’s guidelines will remain stable through 2013.
This is good news for seniors who are considering taking out a HECM mortgage. The HECM mortgage can provide older individuals with extra income to bolster their existing revenue after their retirement. Many seniors find that their financial situation becomes precarious after they retire. The income from pensions, Social Security and other sources is frequently insufficient for them to meet their obligations. In addition, other seniors may have sufficient income for basic necessities but don’t have enough cash to take care of anticipated projects, travel or assistance to family members.
That’s where the Reverse Mortgage option comes in. Borrowers must be 62 years of age or older and live in a home that they own outright or have already paid a significant portion of the existing mortgage. Through a Federal Housing Administration (FHA)-approved lender, the home owner(s) can mortgage their house and draw the cash as a lump payment, a line of credit or monthly payments. Borrowers must pay the closing costs and interest on the loan, either in an upfront payment or out of the loan’s fund. Borrowers continue to be responsible for the home’s upkeep and local property taxes.
The value of a Reverse Mortgage is based on a formula which determines the loan’s worth. This formula takes into account the calculated market value of the house, the borrower’s age (this includes a spouse if there both spouses are listed as owners of the home) and current interest rates. Differing interest rates apply in various counties. The Reverse Mortgage calculator will allow applicants to estimate the amount that they can obtain through an HECM loan.
The HECM loan is seen as one of the HUD’s most successful programs and HUD has decided that they will not seek any changes to the loan’s structure or model. Housing Secretary Shaun Donovan noted that improvements in the loan’s modeling and an optimistic forecast for the housing market have created a strong market for HECM loans at their present levels. President Obama’s budget proposal reveals that the HECM subsidy rate is improving and will carry a projected negative subsidy rate of .92% for the Fiscal Year 2013. This pleases Congress which will not need to appropriate funds for the program because it is generating enough revenue to cover its costs.
For the projected future, this gives confidence to new Reverse Mortgage borrowers who see the program’s stability. Reverse mortgage insurance premiums will remain at their present 1.25% and principal limit will continue at $625,000. In addition, the HECM Saver program will remain intact. The Reverse Mortgage Industry has responded positively to this announcement which, they believe, will further strengthen the program.
