New Federal Housing Law has Positive Effects on Reverse Mortgages

Homeowners in their golden years are finding themselves cash strapped, but with a major amount of equity in their home they can benefit from the new Federal housing laws affecting reverse mortgages. The policies have lowered the fees seniors pay to obtain these types of loans as well as raise the amount of money they can borrow.

In effect since January 1, 2009 the law raises the amount of loan money people can get from a reverse mortgage to a whopping $417,000 and up to $625,500 in high-cost areas (pending the amount of equity in your property). Additional revisions include:

  • Switching from lower county loan limits (originally $200,160 to $362,790) to a higher national amount
  • Limiting the origination fee that lenders can get for federally backed loans to $6000
  • Limiting the fees lenders can charge for the loan to up to 2% of the first $200,000 of the loan and 1% on the balance of the value
  • Makes it easier for seniors to move into a more practical housing situation by combining two transactions into one step; borrowers can take out a reverse mortgage on the new home.

Fairly new to the mortgage industry, reverse mortgage loans can be a way for seniors to tap into their home equity and get some cash to pay off outstanding debt, meet monthly expenses, or just improve the quality of their lives. The loan amount doesn’t have to be paid until the house sells.

For those interested in a reverse loan, there are many factors to consider before committing. Use a retirement calculator and a mortgage calculator to see if a reverse mortgage makes sense. There could be a negative impact to your senior government benefit plan, as well as effects on estate planning. It is best to seek the advice of your trusted financial expert before proceeding.