Big Changes in Reverse Mortgages

Just like every other part of their lives, the Baby Boomers’ entrance into the reverse mortgage market is resulting in significant changes. Most Boomers are much more comfortable with debt than their parents and more “hands-on” with their financial strategies.

Since Boomers began reaching age 62 (the qualifying age for a reverse mortgage), we have seen closing costs drop significantly. Gone are the mandatory charges for origination fees and the Up Front Premium for the FHA insurance.

But I’m getting ahead of myself here. You may be asking, what is a reverse mortgage, anyway? Well, it is a bank loan secured by the primary residence of the borrower, but with some differences tailored to retirees:

A reverse mortgage doesn’t come due until the last borrower dies, moves or sells, so it can last for the rest of one’s life.

You don’t have to make payments. (You can, but you don’t have to.) Instead, you borrow the money you get and you borrow the interest on that money. This means your debt increases until you or your heirs pay off the mortgage.

The FHA (Federal Housing Administration) insurance protects the borrower and his/her heirs from owing more than the value of the house at the time of sale (so you can’t be “under water”). It also insures the equity line so the borrower can be sure the money will be available.

Now, back to those fees. Recently, they have started to come back, but as an option. Previously, there was no choice; the fees were part of every loan. Now borrowers can decide how much of their home equity they want to access. Higher fees usually make more home equity available from the start.

You can now get a reverse mortgage for about the cost of a regular mortgage. Or you can choose from a range of options offering a variety of fees and loan amounts.

Lending limits remain higher, at $625,500. Reverse mortgages can also be used for home purchases. The FHA-required borrower counseling has become more extensive. As the many ads on TV demonstrate, more companies are offering reverse mortgages.

As with any financial decision, one needs to do the research. The National Reverse Mortgage Lenders Association (NRMLA) has an excellent website. Check with your local bank or credit union for guidance and, of course, involve those financial professionals, friends and family members whose guidance you value.

Aging in Place, it doesn’t happen by accident.

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About the author

Scott Funk has specialized in Home Equity Conversion Mortgage reverse mortgages for over a decade. He is a recognized Aging in Place advocate in his home state of Vermont. His monthly newspaper column Aging in Place has run for 7 years in 24 papers around the state. Scott is brings a lighthearted approach to his talks on Boomers, retirement and aging on purpose.