Over the past few months, the federally-insured reverse mortgage program has seen a lot of changes—including the introduction of new, consumer-friendly loan products like the HECM MAX5.
The Home Equity Conversion Mortgage (HECM) program allows borrowers age 62 and older to access the equity they’ve built up in their homes in the form of a non-recourse loan insured by the Federal Housing Administration.
Borrowers can access their loan proceeds in a number of ways—depending on whether they choose an adjustable or fixed-rate loan—including as a lump sum, a monthly term or tenure payment, as a line of credit, or some combination of the three.
Starting in September 2013, the FHA has introduced new rules for reverse mortgages, including some seeking to ensure borrowers won’t prematurely run out of their loan proceeds. Many of the program changes were put in place to make the reverse mortgage product even safer for consumers. But there’s an added benefit: more loan options for consumers, such as the HECM MAX5, which became available to borrowers in May 2014.
The HECM MAX5 is a monthly adjustable-rate loan that allows borrowers to access the same amount of money as they could through a traditional monthly adjustable-rate HECM. However, with the MAX5 loan, the lifetime interest rate is capped at 5% above the initial interest rate at the time the loan is originated.
Along with the lower lifetime interest rate cap, this new loan product also offers a lower initial interest rate compared to an annually adjusting HECM. This feature protects borrowers against rate increases that can occur over the life of the loan.
Beyond these two consumer-friendly features, the HECM MAX5’s product features are the same as the existing, federally-insured monthly adjustable-rate HECM. Borrowers can choose any of the available payment plan options and can also opt for an open-ended loan with no minimum initial draw. The interest rate for the MAX5 is based on the one-month LIBOR index.
There are other new reverse mortgage products recently introduced to the market, including the HECM Choice, which offers borrowers a fixed-rate, closed-end line of credit that allows for future draws. As with traditional HECM loans, borrowers who choose the HECM MAX5 or HECM Choice have all the existing protections the federal reverse mortgage program offers to consumers.
The non-recourse feature means that borrowers will never have to repay more than what their home is worth when the loan term ends, even if their reverse mortgage balance exceeds the home’s current appraised value. Additionally, the mortgage insurance you pay—both a one-time amount when the loan is taken out along with ongoing mortgage insurance premiums—ensures your continued access to your loan proceeds, even if something happens to your lender.
Are you considering a reverse mortgage and want to learn more about your loan options? Don’t wait—find out more today.
