Considering a Reverse Mortgage? Do These 5 Things Now
The Department of Housing and Urban Development (HUD), the agency that administers the HECM reverse mortgage program announced changes that will:
- Reduce the amount homeowners can borrow
- Increase mortgage insurance premium fees for some borrowers
- Make it harder to qualify for the loan. (Because the loan amounts are smaller, some people with an outstanding balance on an existing mortgage will no longer be able to qualify for a reverse mortgage.)
These big changes are designed to strengthen the long term health of the HECM reverse mortgage program.
Getting a reverse mortgage is not something you should do in a panic. This is a big serious financial decision. However, if you have ever considered getting a reverse mortgage, you should seriously think through the pros and cons of getting the loan now rather than later.
In fact, if have ever considered a reverse mortgage, here are 5 things you should do now:
1. Set Up a Reverse Mortgage Counseling Appointment ASAP
If you have even the slightest interest in maybe getting a reverse mortgage before the Oct. 2 deadline, you should act now and schedule a reverse mortgage counseling appointment.
Some lenders are concerned that these counseling appointments will fill up quickly. When you make an appointment be sure to tell them that you may want to qualify for the loan before the Oct. 2 deadline.
Reverse mortgage counseling is a mandatory part of the reverse mortgage application. And the counseling must be done BEFORE you can officially apply for the loan and be assigned a case number. In California, the counseling must be done 7 days before you get a case number.
- You can find a counselor on the HUD web site: Search the HECM Counselor Roster to find a HECM counselor near you, or call (800) 569-4287.
- You may also contact a HECM counselor from FHA’s National HECM Counseling Network. These counselors provide both face-to-face and telephone counseling nationwide.
2. Estimate Your Current Loan Amount and Compare to What it Might Be in the Future
Loan amounts will go down after Oct. 2. It is estimated that reverse mortgage borrowers will get about 10-20% less if they wait to do the loan later this year.
How much you can borrow is determined by the lending limits that are set by HUD, the value of your home, your age and current interest rates.
You can get an estimate of your current loan amount with this reverse mortgage calculator. You can then talk with your reverse mortgage counselor about how your loan amount might change in the future. They should be able to help you estimate what happens:
- When lending limits are lowered on Oct. 2
- If interest rates go up (Higher interest rates usually mean lower loan amounts.)
- As you get older (The older you are, the more money you can get.)
3. If You Don’t Need the Loan Now, Consider the Merits of a Reverse Mortgage Line of Credit
Many people don’t realize that the HECM reverse mortgage has a flexible line of credit option. Instead of taking cash when you get a reverse mortgage, you can set up a line of credit.
With a reverse mortgage line of credit, you can lock in a higher loan amount now, but limit the costs of this loan.
- You don’t pay interest on any money held in the line of credit — only on funds you withdraw.
- The line of credit is one of the most powerful but little understood facets of a reverse mortgage. Today it’s an amazing way to lock in growth on your home equity for a relatively low cost. It will still be powerful in the future, but the growth rate is lower. Money in a reverse mortgage line of credit grows at the effective rate which equals a floating Libor rate + the lenders margin + the MIP (Mortgage Insurance Premium). Today the line of credit growth rate is roughly 5.6% (1% LIBOR + 3-4% lender margin + 1.25% MIP). This growth rate will come down under the new rules effective October 2nd – likely to 3.5-4.5% ( 1% Libor + 2-3% lender margin + 0.5% MIP).
4. Find a Reverse Mortgage Lender — Tell Them You Want a Case Number Before Oct. 2
While you may want to talk with multiple reverse mortgage lenders in order to find the best terms and interest rates, it is important that whomever you choose to work with knows that you are interested in acting quickly.
To obtain the higher loan amounts, you must have a completed application, a fully signed counseling certificate and be assigned a case number by your lender — all before Oct. 2.
5. Stay On Top of Deadlines and Paperwork
HUD has chosen to act very quickly on these rather significant changes to the HECM reverse mortgage program.
You will need to be proactive and make sure that your lender is doing what they need to do get you a case number by the deadline.