HUD Makes Reverse Mortgages Less Attractive
The Department of Housing and Urban Development (HUD) has made changes to the federal reverse mortgage program. Citing the need to put the program on better financial footing, HUD has raised reverse mortgage fees for some borrowers and lowered the amount homeowners can borrow. The changes took effect on October 2, 2017. They affect borrowers who take out new loans, but not existing loans.
A reverse mortgage allows a homeowner who is at least 62 years old to use the equity in his or her home to obtain a loan that does not have to be repaid until the homeowner moves, sells, or dies. In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. Seniors sometimes use the loans to pay for long-term care.
HUD has changed the mortgage insurance premium fees that homeowners pay in order to obtain a loan. Formerly, homeowners paid 0.5 percent of the value of their home as an upfront mortgage insurance premium on smaller loans, but homeowners who took out a loan that was more than 60 percent of their home’s value paid a 2.5 percent premium. The new rule requires homeowners to pay a standard 2 percent upfront mortgage insurance premium. To offset the upfront costs, the annual mortgage insurance premium rate has been dropped from 1.25 percent to 0.5 percent.
In addition, HUD lowered the amount that homeowners can borrow. The average that a borrower at current interest rates can now borrow is only around 58 percent of the value of his or her home, down from 64 percent.
(Attorney Robert A. Scalise, Jr. is a Partner of the law firm Ericson, Scalise & Mangan, PC located at 35 Pearl St., New Britain, CT. www.esmlaw.com. His practice concentrates on Elder Law, Estate Planning, Probate, Estate Administration, Title 19 Asset Preservation and Real Estate.)