Many people are not aware that reverse mortgage rules have changed over the years. Just like any financial decision, if you are interested in a reverse mortgage you must know the finer details and how they will affect you.
The New Reverse Mortgage Rules
Over the last two years, the Federal Housing Administration has changed many of its reverse mortgage rules.
To start, the program eliminated one of the largest upfront fees to be paid by the borrower. There is a new product being referred to as the “Saver” thanks to the fact that borrowers can now save money by avoiding this costly fee. In the past, due to large upfront fees, a reverse mortgage only made sense for people who wanted to stay in their home for the long term. While this product still makes most sense for those who will be staying in their home for an extended period of time, smaller fees makes it easier to sell.
In short, the upfront fee, known as the mortgage insurance premium, has been cut from 2 percent to .01 percent. This allows the borrower to receive more cash.
With some reverse mortgage, there is an increase in the ongoing premium – now at 1.25 percent.
Why does the borrower have to pay this amount? This ongoing insurance protects the Federal Housing Administration and government if the property ends up being sold for significantly less than the mortgage value. When this happens, the Federal Housing Administration owes the difference to the lender.
Finally, and despite the changes above, lenders are now in position to offer interest rates as low as five percent. This puts borrowers in position to withdraw more money than in the past.
These are several of the most important updated reverse mortgage rules. If you are interested in a reverse mortgage you need to be aware of these rules, as well as any others that will affect you.