Seniors Benefit From New Higher Loan Limits

Written by rmpro
Posted November 17, 2008 at 5:18 pm

I like this article because it gives an honest overview of reverse mortgages. There are also some references at the end where the reader can find more information about these loans. The author mentions that these loans are comparatively expensive up front. That is true, but you also need to keep in mind that a reverse mortgage allows the homeowner to stay in the home until they die or move out permanently. If this type of loan enables a retired senior to stay in their home and live comfortably the rest of their life, with no payments, then it is worth every penny.

Monday, Nov. 17, 2008

Higher limits for reverse mortgages may benefit some seniors

By VICKI LEE PARKER - McClatchy-Tribune News Service

This month, many older homeowners got some long awaited good news when the Department of Housing and Urban Development approved the higher lending limits for reverse mortgages. Now a home equity conversion mortgage, or HECM, can be federally insured up to $417,000.

Brien J. Brandenburg, a reverse mortgage specialist for Wells Fargo Home Mortgage, said that some of his clients have been waiting at least three years for the higher limits in order to access more cash from their home equity.

“This is wonderful,” Brandenburg said. “The previous lending limits did not allow some seniors pay to off their first loan. The increased amount will help take that burden off their back.”

Brandenburg explained how someone would benefit under the new limits.

He gave the example of a 72-year-old person with a home valued at $400,000, for which he still owes $200,000.

Under the old limits, the most cash he could receive is $125,000, Brandenburg said. That’s not nearly enough to pay off his loan. However, under the new limits he could gain access to $255,000. That would be enough to pay off his loan and have $55,000 to spend on other expenses, he said.

Similarly, Brandenburg said, existing borrowers whose home value is greater than the new HUD limit may be able to increase their benefit by refinancing their reverse mortgage.

Over the past few years, the popularity of reverse mortgages has increased despite ongoing debate about their benefits.

In 2001, HUD reported that 7,793 HECM loans were funded. So far in 2008, there have been 112,154.

The ideal candidate for a reverse mortgage are seniors who have had their homes for a long time and have built up a lot of equity - the home’s value minus debt - in their homes. The idea is rather than sitting on all that equity, the homeowner could use the home as a source of cash.

Those who qualify can choose to get a lump-sum payment, monthly payments, a line of credit, or any combination of the three.

Christena Schafale, a counselor with Resources for Seniors, a not-for-profit agency in Raleigh, N.C., that provides services for older people, said she is excited about the new limits and believes it will help a substantial number of people.

However, she cautions that reverse mortgages are not for everybody. There are several circumstances in which getting a reverse mortgage would not be wise, she said.

- If you are planning to move soon it would not be worth it to get a HECM. “Theses loans are extremely expensive,” Schafale said. “It would be a waste of money to set up the loan if you don’t plan to remain in the house very long.”

- Don’t dip into your equity line too early. “People are tapping into their equity line just to have some fun and are finding themselves in their 80s with no more equity left in their home.”

- Don’t let a smooth-talking investor convince you to get a HECM loan in order to invest the money. “It rarely works,” Schafale said. She explained that typically the cost of the loan is about 8 percent of the loan amount. In order to for any investment to be profitable, you would have to invest your money in a fund that pays more than 8 percent. And that is rare in this strained economy.

To learn more about reverse mortgages:

- AARP’s Web site has a publication on reverse mortgages at www.aarp.org/revmort, or call (800) 209-8085

- Visit the National Reverse Mortgage Lenders Association’s Web site at www.reversemortgage.org.

To find lenders who offer FHA-backed reverse mortgages, go to:

- HUD’s Web site at www.hud.gov/ll/code/llplcrit.html. Enter your city or state and put a check next to “reverse mortgage (HECM),” then click “search.”

- NRMLA’s Web site at www.reversemortgage.org. Click on the “Locate a lender” box.

To calculate your HECM loan amount, try the following Web sites:

- www.aarp.org/money/revmort. Click on the loan calculator link in the middle of the page.

- www.revmort.com/nrmla/index.asp. Enter your date of birth, the value of your home and your zip code.

(Vicki Lee Parker is a freelance personal finance columnist. She can be reached at vickileeparker@gmail.com or (919) 877-5719.)

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Filed under: County Limits, Economy, FHA, HECM, Income, Retirement, Reverse Mortgage Info

Another Great Article Explaining Reverse Mortgages

Written by rmpro
Posted November 5, 2008 at 2:30 pm

It’s amazing to me how many people are out there spreading confusion and half-truths about reverse mortgages. Many of these are people who should know better. Many are people who apparently are more interested in looking and sounding important and authoritative than in telling the truth. Seniors need to know the real truth so they can make informed decisions. This article is another I’ve found that contains the straight truth about reverse mortgages.

A lift for reverse mortgage market

By Tom Kelly

One of the most significant developments in the history of reverse mortgages occurred recently when FHA Commissioner Brian Montgomery announced that a new single national limit had been set, eliminating geographical boundaries for many seniors in the country’s most popular reverse mortgage program.

Loans insured by the Department of Housing and Urban Development, known as Home Equity Conversion Mortgages, or HECMs, now have a common ceiling of $417,000, regardless of where the home is located.

Previously, the HECM program assigned different lending limits by county ranging from $200,160 in rural areas to $362,790 in the highest home value areas. The new, higher lending limit will enable borrowers to obtain a substantially greater benefit from their homes, if the value is higher than the previous HUD limit.

Similarly, an existing borrower whose home value is greater than the new HUD limit may be able to increase that benefit by refinancing the reverse mortgage. The borrower is encouraged to contact the lender to weigh fees and costs to determine if it makes sense to refinance.

Lenders and consumers have been pushing for the single national limit for more than a decade, arguing that the long-time method of assigning limits by area for HECMs was too restrictive. All interested parties had been waiting for clarity on a figure: if the national limit would be set at $417,000, or $625,500, or a sliding scale somewhere in between. While many borrowers had hoped for a higher benchmark, the $417,000 number came as no surprise given the state of the conventional lending environment.

“HUD should be applauded for its expedient implementation of the single national loan limit for the HECM program, especially during such a tumultuous period,” said Peter Bell, president of the National Reverse Mortgage Lenders Association, a nonprofit trade group based in Washington, D.C. “The higher single national loan limit and other provisions expected to be implemented in the coming months make reverse mortgages a more viable retirement financial option for a broader audience who can receive higher benefits at lower origination fees than ever before.”

The Housing and Economic Recovery Act of 2008 recently reduced the maximum fee to 2 percent on the initial $200,000 of the home’s value and 1 percent on the balance thereafter, with a cap of $6,000. Previously, HECM fees were capped at 2 percent of your home’s value or the county lending limit, whichever was lower.

Bell said the new formula for maximum origination fees will become effective concurrently with the implementation of the new HECM loan limits. HUD is aiming for an effective date of Nov. 1.

Since HECMs were first launched as a pilot program in 1989, loan maximums have been slow to rise. In 2004, for example, the highest of the loan limits — applicable generally to major metropolitan areas — increased to $290,319, up from $280,749. The lowest loan ceiling, which typically applies to rural and non-metropolitan areas, rose to $160,176, up from $154,896. Clearly, a senior with an expensive home in a rural area did not find the HECM appealing.

More than 450,000 HECMs have been made since 1989. FHA, a branch of HUD, insured 107,367 HECMs in 2007 compared to 43,131 in 2005.

A reverse mortgage enables senior homeowners to convert part of the equity in their homes into tax-free income without having to sell the home, give up title or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free.

Borrowers can choose to receive the reverse mortgage funds as a lump sum, monthly income, line of credit, or as a combination of monthly income and line of credit.

They can use the funds anyway they wish — for home repairs and improvements, medical costs, in-home care, education and supplemental retirement income. Borrowers make no monthly payments on a reverse mortgage during its term. The loan becomes repayable when the borrower sells the home or permanently moves out. In addition, the repayment amount can’t exceed the value of the home.

Reverse mortgages are originated largely by private lenders. Most are members of the National Reverse Mortgage Lenders Association (www.reversemortgage.org) and are required to sign a code of conduct and follow best practices for the treatment and counseling of seniors.

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Filed under: County Limits, Economy, FHA, HECM, Income, Rates, Retirement, Reverse Mortgage Info, hud

Lower Interest Rates = More Money From A Reverse Mortgage

Written by rmpro
Posted October 29, 2008 at 7:29 am

Lower interest rates are good news if you are getting a reverse mortgage on your home. Reverse mortgages are a great way for seniors to get more money for living expenses or for the other things they may need or want. It is a much better alternative for those over 62, in most cases, than a home equity loan or a 2nd mortgage. Now seniors will be able to receive even higher benefits from their new reverse mortgage.

Reverse Mortgage Rates - October 28, 2008

The average CMT HECM borrower will have benefits that are $6,000 higher on Tuesday the 28th. The average LIBOR HECM borrower will have benefits that are $8,000 higher.

This week, all Treasury-based HECM’s with a margin of +182 or less will pay the HECM maximum benefits. Ditto for LIBOR-based HECM’s with margins of +139 or less. Using these margins, the initial note rate on a LIBOR HECM would be 115 bp more than that on a Treasury HECM. The LIBOR yield curve is more normal this week.