Government Makes Changes To Reverse Mortgage Program

The Federal Housing Administration (FHA) has introduced a new reverse mortgage product, made more attractive by a vote from Congress to extend higher reverse mortgage limits.

 Reverse mortgages are a type of federally insured home loan designed to help seniors leverage the equity in their homes for cash. They are different from a traditional mortgage, in that the homeowner doesn't make payments, but receives monthly income.

 The FHA recently announced a new version of the standard Home Equity Conversion Mortgage (HECM) product. The new product is called the HECM Saver, and allows homeowners to borrower a smaller amount from their home than would normally be available with a standard HECM.

 Homeowners benefit from lower upfront closing costs. Borrowers can generally access 10 to 18 percent less with the HECM Saver option, but under the same terms and conditions as a standard HECM.

Extended limit

Congress also recently passed legislation extending the $625,500 loan limit for reverse mortgages. This higher limit allows homeowners who need it to extract more money from a standard HECM.

"These new changes make reverse mortgages accessible by an ever wider range of older Americans, serving the needs and addressing the criticisms of both larger and smaller borrowers," said Ethan Ewing, president of Bills.com. "Reverse mortgages aren't for everyone, but for the right homeowner they remain a powerful tool for accessing cash in their homes or for paying unforeseen retirement expenses."

The new reverse mortgage product is much like the old one. It allows individuals 62 years or older who own their homes to leverage the equity in it to secure up-front cash, ongoing monthly payouts, or a combination of the two from a lender. Proceeds are issued to the homeowner and interest accrues on the loan, but no payments are due until the borrower dies or sells the home.

This loan also does not hinge upon a credit score or income thresholds, and the only stipulations are that the owner remains in the home and properly maintains the property.