New Reverse Mortgage Rules; Homeowners Now Borrow More and Pay Less
From Nov 1, 2008 new reverse mortgage loan laws led to a surge of applications for reverse mortgage loans. The law sees the reduction of reverse mortgage fess while it increases the ceiling on the amount that can be borrowed.
This new enactment is expected to favor homeowners who are in need of monetary funds. According to Peter Bell who is the president of the National Reverse Mortgage Lenders Association, this enactment will result in a hike of the number of reverse mortgage loan applications.
The structure of reverse mortgage loans allows homeowners to convert the equity of their homes into cash. So the homeowner receives a monthly income from the reverse mortgage lender. The borrower or homeowner can access the funds as a lump sum, monthly income payments or an open line of credit. They can also opt for a combination of these methods.
To benefit from reverse mortgage loans the homeowner has to be up to 62 years old. The loan remains unpaid until the homeowner moves out of the house, sell the home or dies. Then the home is sold to cover the debt. If the proceeds from the sales are less than the debt, the homeowner does not have to bother about making up the difference.
Prior to the enactment of the new law, those applying for reverse mortgage loans which are being insured by FHA can borrow up to the old limit that ranged between $2000,000 and $362,790 depending on where the house is located. With the new rules borrowers could now borrow up to $417,000 nationwide. As usual, the older the homeowner is, the more they can borrow.
In addition to the increase in the borrowing maximum limit, homeowners also enjoy lesser fees under the new rules. Before the laws homeowners had to pay 2% as origination fees. Under the new rule they will only pay 2% for the first $200,000 they want to borrow and 1% on the rest. There is also now a $6,000 fee cap on origination fees.
The new rules will favor people who do not plan to move from their home until death. A reverse mortgage loan gives them access to cash that helps them do just that. Susan Wachter, a University of Pennsylvania’s Wharton School of Business professor of real estate, calls them the “niche household a reverse mortgage is exactly right for”. She furthers says they are “That person who knows they want to stay in their home until death, and they really need the cash to allow them to do so.”
