There were significant changes to the HECM reverse mortgage program effective October 2013. Average amounts available were reduced about 8% and the former “standard” and “saver” programs merged.
There are important considerations impacting the cost of your reverse mortgage.
- If you elect to receive your funds monthly or in a credit line – as long as the amount you receive in the first year is 60% or less of the available funds – the up front mortgage insurance will be 0.50% of the value of your home or loan limit – whichever is less.
- If your needs are such that the amount drawn initially is more than 60% of the available funds – the upfront mortgage insurance will be 2.5% of the value of your home .
Careful planning will be important to optimize your benefits and reduce your costs.
Options to receive proceeds from your reverse mortgage include a monthly payments, lump sum payment, a credit line or a combination of the three.
Funds are advanced to the borrower and interest accrues on outstanding balances, but the loan balance is not due until the parties to the reverse mortgage no longer live in the home. At no point will the borrower owe more than the then current value of their home. If the loan balance were to exceed the value of the home, FHA insurance – not the borrower or their estate – pays the difference. As always with a reverse mortgage, there is no risk of passing the mortgage debt to heirs. However, all equity that is available once the loan has been repaid is returned to the heirs.