What to know about HUD’s reverse mortgage changes

Posted on October 13, 2017

Effective October 2, 2017, the Department of Housing and Urban Development (HUD) announced changes to the popular federal reverse mortgage program. These changes will not affect existing loans, just new reverse mortgages, say Teipen, Selanders, Poynter & Ayres CPAs.

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 the meantime, the homeowner receives a sum of money from a lender, generally a bank. The fund is based largely on the value of the house, the age of the borrower, and current interest rates.

Seniors often use reverse mortgage loans to pay for long-term care or to help fund their retirement.

Why the change? Citing the need to put the program on better financial footing, HUD is changing the mortgage insurance premium fees that homeowners pay in order to obtain the reverse mortgage loan.

Currently, homeowners pay 0.5 percent of the value of their home on smaller loans. Those who take out a loan that is more than 60 percent of their home’s value pay a 2.5 percent premium. HUD’s new rule will require homeowners to pay a standard 2 percent upfront mortgage insurance premium.

If you are considering a reverse mortgage, factor in this:

• To offset the upfront costs, HUD has dropped the annual mortgage insurance premium rate from 1.25 percent to 0.5 percent.
• In addition, HUD has lowered the amount that homeowners can borrow to 58 percent of the value of their home, down from 64 percent.

Teipen CPAs expect the HUD reverse mortgage program to retain its popularity with seniors and remain viable and healthy in the fluctuating housing and financial marketplace.