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June 30, 2014
New changes to the government’s reverse mortgage program will provide more money to most new borrowers as long as interest rates remain low.
The Department of Housing and Urban Development (HUD) announced on Friday a new set of principal limit factors. Principal limit factors are the calculations used to determine the amount of money borrowers can receive from the Federal Housing Administration’s reverse mortgage program.
“In the current interest rate environment, the new factors benefit all borrowers over age 63. And, the older the borrower, the higher the rise in benefits,” says Jerry Wagner, chief executive officer of Ibis Software Corporation, a consultant and technology company focused on the reverse mortgage marketplace.
While the amount of the increase in proceeds to borrowers depends on age and where interest rates are headed, those ages 68 years and older will see the biggest proceeds boost in the near term.
According to data provided by Ibis, with a rate of 5%, a 70-year old borrower in a $250,000 home would receive a $3,000 increase in benefits and an 80-year old would receive an additional $11,750.
The changes made to the Home Equity Conversion Mortgage (HECM) program are good news for most borrowers in the short term, but also makes the program more sensitive to a rise in interest rates.
“HUD likely found that younger borrowers were staying in their homes longer than expected,” says Wagner. “[It seems as though HUD] is much more leery of high interest rate environments than they used to be.“
The changes go into effect August 4, 2014, but borrowers in the process of getting a reverse mortgage can opt to receive the new principal limit factors, according to HUD.
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