The Safer Stronger Reverse Mortgage
Reverse mortgages were originally designed and still aim to help seniors in need. However, reverse mortgages in 2020 are safer, stronger and better than ever before.
These loans have evolved so that they now have many official protections in place to make sure that borrowers are secure. And, more and borrowers are using the loans as great financial planning tools and not just a loan of last resort.
Here are some of the reasons reverse mortgages are better than ever:
Lending Limits Have Increased
The maximum reverse mortgage lending limit increased for 2020, allowing retirees with substantial home equity to get more money than was available in previous years.
At the end of 2019, the FHA announced it would increase HECM reverse mortgage lending limits to an all time high of $765,600.
This is good — even great — news for many potential borrowers.
The lending limit, the appraised value of your home, interest rates, your age and spouse’s age (if you are married) and the fees associated with the loan will determine how much money you can get.
- Use a reverse mortgage calculator to estimate your current loan amount.
Housing Prices Are High Now
The more your home is worth, the more money you can borrow with a reverse mortgage.
According to recent price information, home values are now higher, much higher than they have been in recent history.
While the real estate industry hopes that homes will retain their value, it is unclear what impact the pandemic will have on prices over the next few years.
Jumbo Reverse Mortgages Are Available
A jumbo reverse mortgage is a private loan (most reverse mortgages are issued by the Federal Housing Agency). Jumbo loans are a good idea if you are in a home valued at around $1 million or more and you want to access the maximum amount of money.
Jumbo loans have not always been available, but they are now.
Interest Rates Are Low
The lower the interest rate, the more money you can borrow and the less the loan will cost you.
Interest rates are still at all time lows, making now a good time to consider a reverse mortgage.
You Can’t Use All Your Money Right Away
While today’s reverse mortgage will allow access to significant cash up front, some of your loan amount is held back for future spending, helping with long term security.
Different Reverse Mortgage Payouts for Different Needs
Reverse mortgages are flexible and offer different payout options for different needs:
Cash: You can get access to cash if you need money right away.
Line of Credit: A reverse mortgage line of credit gives you flexibility. You don’t have to pay interest on the money in the line of credit, but it is available to you if you need it and it grows at a good interest rate. The line of credit has made reverse mortgages really appealing to many financial planners and their clients who want options and back up plans.
Payments: If you are worried about retirement income, you can opt to take your reverse mortgage proceeds as monthly payments that will last your lifetime.
Natural Disaster Protections
Floods. Fires. Earthquakes. We have had it all and experts say more disasters are coming.
When you get a reverse mortgage, you are required to carry adequate homeowner’s insurance. As such, you are generally well covered and the insurer will pay to rebuild your home and provide compensation for a place to live during construction. Furthermore, if you choose to rebuild, then your home will be worth more than it was before — potentially increasing your equity stake.
Protections for Spouses
It is not unusual for one spouse to be older — even significantly older — than the other.
This used to be a problem for reverse mortgage borrowers because the younger spouse ran the risk of running out of money and not being able to stay in the home due to reverse mortgage age restrictions. New regulations protect younger spouses and are designed to make sure that the proceeds of the loan will last as long as both spouses live.
Some Mortgage Insurance Premiums Have Gone Up (Others Down)
Mortgage Insurance Premiums (MIPs) are fees that borrowers pay on most home equity loans — including reverse mortgages. In general, changes to the HECM Reverse Mortgage program have made the loans less costly to borrowers.
MIP Upfront Costs: If you plan on cashing out on a lot of your eligible home equity all upfront, then the closing costs for a reverse mortgage are lower now than they used to be. For most other borrowers the upfront costs will be higher.
Ongoing MIP Costs: These ongoing costs have come down for everyone. It used to be that borrowers would pay 1.25% of their outstanding loan balance each year. This fee was significantly reduced to .5%. This may translate to thousands of dollars in savings each year for an average reverse mortgage borrower.
Flexibility for Erratic Times
When the economy is erratic, smart money managers look for ways to increase financial flexibility.
Getting a reverse mortgage is one way to increase your financial options. Instead of simply being able to earn money or withdraw from existing savings, a reverse mortgage gives you another financial resource — you can “withdraw” from your home equity.
Financial Counseling Session
All potential reverse mortgage borrowers are required to undergo a financial assessment and counseling session. This is a great opportunity to learn about the loan and how it will impact your short and long term financial health.
What Hasn’t Changed for the Reverse Mortgage?
While reverse mortgages are better than ever, the really good news is that all of the great benefits that reverse mortgage borrowers received in the past are still available with the new reverse mortgage program.
- Home ownership: With a reverse mortgage, you will continue to retain full ownership of your home.
- Improved cash flow: If you have an existing mortgage, a reverse mortgage enables you to pay off that loan to improve your monthly budget. Some borrowers also get access to cash to use in any way they want or need.
- Government backed: In the event your lender goes out of business, the government guarantees that you will still have access to any remaining proceeds from the loan.
- Non-recourse: if your reverse mortgage ends up exceeding the value of your home, you will never have to repay more than what your home is worth at the time of sale.
- Options: Both fixed and adjustable rate loans are still available.