New Federal Changes in Reverse Mortgage Rules to Help Even More Seniors Retain Homes and Find Cash in Retirement
San Mateo, Calif. – October 12, 2010 – A new reverse mortgage product from the Federal Housing Administration (FHA) along with a vote from Congress to extend higher reverse mortgage limits were recent victories for seniors considering a reverse mortgage or for those senior homeowners in need of additional cash in retirement. Reverse mortgages are a type of federally insured home loan designed to help seniors leverage the equity in their homes for cash. Consumer money resource Bills.com today helped explain these new changes and address common misperceptions about reverse mortgages.
A reverse mortgage is a federally insured mortgage product created to help seniors use the equity they have built up in their homes, while staying in their homes. A reverse mortgage 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 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.
The FHA recently announced a new version of the standard Home Equity Conversion Mortgage (HECM) product. Called the HECM Saver, the new product 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.
In addition to the new product, Congress 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.”
Despite more and more Americans applying for reverse mortgages, many older homeowners still remain confused as to the benefits and dangers of this product. To help clear up misperceptions about the product, Bills.com debunks the seven most common myths surrounding reverse mortgages.
Myth #1: The bank owns your home in a reverse mortgage
Truth: The bank never owns your home in a reverse mortgage. The homeowner retains title as long as they live in the house, just as with a traditional mortgage.
Myth #2: Your home must be paid off to qualify for a reverse mortgage
Truth: The more equity a homeowner has in their home, the more money they can borrow. But it is not necessary to have paid off your original mortgage to secure a reverse mortgage.
Myth #3: Reverse mortgages are too expensive
Truth: The cost of a reverse mortgage can seem inflated because of FHA insurance, but it is in line with the costs of a traditional mortgage with FHA insurance. This insurance provides peace of mind and protects the borrowers from ever owing more than the cost of their home when it is sold. Additionally, the new HECM Saver product allows homeowners concerned about costs to borrow less with reduced upfront costs.
Myth #4: Reverse mortgages are only for desperate people or those in foreclosure
Truth: Many savvy older Americans use a reverse mortgage as a valuable financial planning tool. The income from a reverse mortgage can augment social security and investment income, allowing seniors to better enjoy their retirement.
Myth #5: Heirs will be left to pay off the balance of a reverse mortgage
Truth: A reverse mortgage is a non-recourse loan and FHA insured. This means that a homeowner or their heirs can never owe more than the value of their property at the time of its sale. However, heirs do have the option of repaying the loan and purchasing the property themselves.
Myth #6: A homeowner with poor credit cannot get a reverse mortgage
Truth: Credit and income are not evaluated when applying for a reverse mortgage. The only requirements are that the homeowner be 62-years-or-older, own their home as a primary residence, and properly maintain it and pay taxes. Many homeowners actually use a reverse mortgage to help with foreclosure or bankruptcy.
Myth #7: Reverse mortgage proceeds are taxable and will lower Social Security income
Truth: Proceeds from a reverse mortgage are not taxable because they are considered a loan, not income. Homeowners should consult a tax professional with any questions about their unique situation.
Bills.com is the leading resource for free and personalized money help. Founded by a group of financial experts dedicated to helping consumers save time, money and stress, Bills.com is designed to give consumers confidence in making money decisions. The site offers useful information, powerful tools, and real money experts to give consumers the information they need in the way that they want it.