Many homeowners aged 62 and older may choose to apply for a reverse mortgage as a way to obtain more financial security and flexibility if they feel that their other sources of income, which could include Social Security benefits, aren’t enough. However, recent changes limit how much borrowers can take from their homes and increase the upfront costs of obtaining these loans.
Recent changes (reductions in funds to clients)
According to the Department of Housing and Urban Development (HUD), the federally insured reverse mortgage program has been suffering losses in recent years, necessitating the need to put restrictions in place.
The new rule means that if 62-year old homeowners qualify for loans with reverse mortgage rates of around five percent, they will end up with 11 percent less money from their home than they would have received before the rule went into effect. It’s slightly worse for 80-year old homeowners, whose funds will experience a 12 percent reduction.
While this is a very significant change, another change that will have a big impact on homeowners who are thinking about applying for a reverse mortgage is that initial premiums will be higher than before; however, annual premiums will be lower in subsequent years. Before the rule was implemented, the initial premium was around 0.5 percent of the home’s appraised value for most cases. Under the new rule, the initial premium will be two percent.
It’s not all bad news for senior citizen homeowners who were thinking about taking out a reverse mortgage. The annual mortgage insurance premium before the new rules were implemented was 1.25 percent. This premium had to be paid every year over the course of the entire loan. The new rules have dropped that annual premium to 0.5 percent.
If you’re thinking about applying for a reverse mortgage, then you need to know what costs are involved so that you can determine where you will stand financially. While these new rules will affect how much you can take out and what your premiums will be, reverse home mortgages are still extremely beneficial for anyone over the age of 62 who is looking for more financial flexibility in their life. For information about reverse mortgage rates or about applying for a reverse home mortgage loan in Denver or the surrounding areas, be sure to contact us at Alliance Mortgage Group today.