If you’re over 62, own your home outright or have a modest loan balance, and are tired of making ends meet on Social Security, a reverse mortgage may be worth considering. A reverse mortgage is a loan against the equity in your home requiring no repayment for as long as you live in the home as your primary residence. The funds could come in the form of a monthly payment, a credit line or a lump sum that can be used for anything, from everyday living expenses and home repairs to paying off debt or taking a leisure cruise.
The safest reverse mortgage is the government-insured Home Equity Conversion Mortgage, or HECM. It allows seniors to retain title to their home while living in the home for as long as they want, even if all the equity has been depleted. Another advantage of this type of loan is that the heirs can never be held liable for any loan balance in excess of the value of the property at the time the loan becomes due. There are also no qualifying income or credit criteria for reverse mortgages.
So, with everything the reverse mortgage has going for it, what is the downside? For starters, the fees and costs have historically been substantially higher on a reverse mortgage than on a conventional mortgage. Reverse mortgages are considered long-term loans, meaning that they’re ideally suited for seniors who intend to stay in their home for quite some time. As the fees and costs are amortized over a longer period of time, they become a smaller percentage of the total loan balance and represent a better value to the consumer.
The good news is that, in general, the fees and costs of the HECM have gone down in the last year or two due to increased competition among lenders. With the depressed housing market, lenders are trying harder than ever to capture your business. Credit counseling agencies throughout the country, which provide counseling to prospective HECM borrowers as required by the Department of Housing and Urban Development (HUD), now see fee discounts and waivers on reverse mortgages that they have never seen in the past.
In addition to the welcome fee reductions, HUD introduced a new loan product in October of 2010 known as the HECM Saver. This new version of the standard HECM offers a considerable reduction in the mortgage insurance premium. The tradeoff with the HECM Saver is that there is less money available to borrow; however, the Saver might be just the ticket for those needing limited funds or for those who may not intend to keep the loan for a long period of time.
Another concern long associated with the Home Equity Conversion Mortgage involves heirs who want to keep the house. Until July 19, 2011, heirs were required to repay the entire loan balance, even when the balance was more than the property was worth. Now heirs, including non-borrowing spouses who want to keep the property, are only required to pay the lesser of the loan balance or 95% of the appraised value of the home.
Clearpoint Credit Counseling Solutions currently employs more than 40 certified HECM counselors to give HUD-required Reverse Mortgage Counseling sessions. Each counselor has received extensive training and passed a rigorous test to provide Clearpoint clients with a thorough understanding of the reverse mortgage and how it applies to each client’s specific situation. Due to a grant from HUD, there is presently no charge to the client for this comprehensive counseling.