Reverse Mortgage Eligibility

  • All reverse mortgage borrowers must be 62 and older
  • Must own property and occupy as primary residence
  • Participate in an information counseling session
  • Must have sufficient equity in the property
  • Property must meet FHA property standards
  • Must maintain home with needed repairs, property taxes and insurance

Loan Amount Based On

  • Age of youngest borrower
  • Current interest rate
  • Lesser of appraised value or the FHA insurance limit
  • An Image Slideshow - Reverse Mortgage Educator
  • An Image Slideshow - Reverse Mortgage Educator
  • An Image Slideshow - Reverse Mortgage Educator

HECM Saver

Information about the HECM Saver has been slowly percolating through the industry and then into the general marketplace, such that now a growing number of potential borrowers are inquiring about it.

This program began back on September 21, 2010, in Mortgagee Letter 2010-34, when the FHA announced a new reverse mortgage program—the HECM Saver—to be available beginning October 4, 2010. This is the end result of a long process where the FHA and industry leaders discussed how to create a product to fill a critical gap in the existing options.

The purpose of this program was to offer an alternative reverse mortgage that would be less expensive. In a standard reverse mortgage, the up-front mortgage insurance is 2% of the value of the home, up to a maximum value of $625,500. On a $500,000 home, for example, this would be $10,000. It is this piece in particular that makes a reverse mortgage more expensive than a regular forward mortgage.

In a HECM Saver, the up-front mortgage insurance has been reduced to .01%, a negligible amount, in exchange for the borrower being eligible for less money, and the interest rate tends to be a little higher. The Saver is available in both a fixed-rate lump sum and a variable rate line of credit version.

The FHA initially projected a 20% market share for this product, and after one year the market share was only about 10%, but on the rise. Most industry analysts believe this is an excellent product whose time has come, and will continue to gain traction in the marketplace. Both consumers and originators need time to be educated about it.

What is the profile of the borrower who would most benefit from the HECM Saver? Here’s one possible scenario. Let’s say someone has an existing mortgage and getting rid of those monthly payments would be a huge benefit for their cash flow. The balance of the mortgage is not that big in relation to their home value, such that if they got a standard fixed HECM they would get a large sum of money over and above paying off their mortgage. They don’t need all that extra cash, nor do they see any potential need down the road. With a HECM Saver fixed version, they can still get a fixed rate, but the lower amount of cash they will receive is closer to their wishes, and the cost is less as well, so a double benefit.

Another possible scenario is someone who has no mortgage at all, and is pretty well off financially, with a decent cash flow and an investment portfolio. Their financial advisor suggests that they need “standby liquidity” in order to deal with unforeseen needs without disturbing the investments. With a HECM Saver Line of Credit, they can get just that, with pretty low costs. It’s better than a standard line of credit because, if there is ever a need to tap into it, no payments will be required. Plus, the amount of credit available increases automatically over time without any effort on their part.

Some financial advisors are in fact starting to recognize the Saver as a tool to be used in just this way. Harold Evensky is a big name in that field, and a new edition of his famous book, The New Wealth Management, has recently been published. In a July 20011 article in Advisor Perspectives, Evensky is quoted as saying that this new type of reverse mortgage will “be an immensely powerful tool.”

 
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