In a move that caught mortgage experts off guard, the federal government has just come out with proposed changes to the regulations governing reverse mortgages – changes that one lender called “huge” and “very significant.” Since the announcement of the rule changes came to light, there has been a spate of news articles – such as this one from the website NextAvenue – most of which seem to have a common theme: if you had contemplated a Home Equity Conversion Mortgage (HECM), commonly called a reverse mortgage, now may be the time to get moving, or your borrowing options may be about to become less attractive.
In the words of the NextAvenue article, “One way to supplement your income in retirement is about to become tougher. The Trump administration just announced new policies taking effect Oct. 2 that will increase the upfront cost of reverse mortgages for many borrowers and reduce the size of the loans.” The article goes on to suggest that “If you’re 62 or older (the reverse mortgage age requirement) and have been thinking about converting your home equity into cash, you may want to apply for a reverse mortgage before the new rules kick in next month.”
According to analysts, the changes announced by the U.S. Department of Housing and Urban Development (HUD) were triggered by a feeling on the part of the Trump administration that the HECM program is costing the government too much money. As a result, unless the proposed new rules are modified, borrowers taking out reverse mortgages after October 2, 2017 will receive less money than before and, depending on how they draw out the proceeds, they will likely pay higher costs.
Instead of paraphrasing, we’ll quote directly from the NextAvenue article to explain the changes coming for loans made after Oct. 2:
- “There will be new limits on the total amount you can borrow through a reverse mortgage. Today, the average reverse mortgage borrower can draw 64 percent of home equity, but that will drop to about 58 percent, according to The Wall Street Journal.
- “The upfront mortgage insurance premium for most reverse mortgage borrowers will soar. Premiums for those taking less than 60 percent of the loan proceeds upfront will go from the current 0.5 percent to 2 percent of the ‘maximum claim amount.’
- “The upfront mortgage insurance premium will fall slightly for people taking more than 60 percent of the loan proceeds upfront. It will drop from 2.5 percent to 2.0 percent.
- “Annual mortgage insurance premiums will drop. The annual premium will fall from today’s 1.25 percent of the outstanding balance to 0.5 percent. This change ‘preserves more equity for borrowers over time by slowing the rate at which the loan balance grows,’ the HUD press release said.”
Obviously, interpreting these changes to determine how they impact your particular situation requires the services of a trained professional in the reverse mortgage arena. One such expert who we at AgingOptions recommend on a regular basis is frequent radio guest Laura Kiel, one of the most experienced and trusted names in the reverse mortgage field. We encourage you to contact her immediately or attend one of her excellent reverse mortgage seminars very soon to get the facts. Call us at AgingOptions during the week and we’ll assist you.
The NextAvenue article also emphasizes that time is of the essence if you want to beat the deadline. It quotes Peter Bell, CEO of the National Reverse Mortgage Lenders Association, who says that “The industry will try to accommodate as many people as possible before October 2nd.” Some lenders, says NextAvenue are already “working feverishly” to meet with clients who have yet to complete applications and go through the HUD-required counseling sessions. “I spent several hours making a ton of calls yesterday with our salesforce to tell people that if they’re on the fence about getting a reverse mortgage, see a HUD-approved reverse mortgage counselor,” said one lender. “As we get to the end of September, those appointments will be full.”
With all of this sense of urgency, potential borrowers need to remember that reverse mortgages aren’t appropriate for all homeowners. “Their costs can be high,” says NextAvenue, “and…the money is not free. The amount borrowed plus interest and fees must be repaid. Other home equity options, such as home equity loans or home equity lines of credit, could be less expensive.” Again, consult a trusted professional for personal advice – but you’ll need to act fast and plan well in order to save before the rates and other details are adjusted.
Housing and financial questions such as those involving reverse mortgages are critically important as you plan for retirement, but they’re only part of a much bigger picture. Here at AgingOptions we counsel our clients and radio listeners that, in order to have a retirement plan that is truly comprehensive, they need something more: they need a LifePlan. An AgingOptions LifePlan, unlike other so-called retirement planning strategies, not only answers vital questions about finances and housing but it also answers your questions about the best choices in medical coverage as you age, the best ways to ensure you are protected legally, and the best tactics to involve your family in your planning. If you want to protect your assets as you age, avoid becoming a burden to your loved ones, and escape the trap of being forced into an institution against your will, you need an AgingOptions LifePlan.
To find out more, without cost or obligation, please accept our invitation and attend a free AgingOptions LifePlanning Seminar near you. We offer many choices of locations, dates and times, so click here for details and online registration, or call us during the week. We’ll look forward to answering your questions soon at an AgingOptions LifePlanning Seminar.
(originally reported at (www.nextavenue.org)