Posted on December 10th, 2011
Reverse mortgages use to only exist in one form: The HECM (Home Equity Conversion Mortgage) Standard. The HECM Standard is available in both adjustable and fixed rate options. Recently, HUD introduced a lower cost alternative for homeowners called the HECM Saver.
The HECM Saver is a reverse mortgage with significantly lower upfront costs. Compared to the HECM Standard it also offers less monies to the homeowner so it is important to determine which option may be best for you. For homeowners who do not need or want the money provided to them with the HECM Standard can opt for the lower cost HECM Saver.
The FHA Mortgage Insurance Premium (MIP) is the difference between the two options. The MIP is part of the closing costs which goes to FHA. This protects the lender in the event the loan balance is greater than the home value when the loan becomes due and payable. This is good because neither the borrower nor the estate will be personally responsible for the loan if it exceeds the fair market value of the house when it becomes due.
With the HECM Standard the cost of the MIP is 2% of the home value. If your home is worth $300,000 this will be $6,000. The cost of the MIP with the HECM Saver is 0.01%. This is only $30 in a $300,000 house. This is a tremendous savings in closing costs. To get a better understanding of all costs involved you can review them here reverse mortgage costs.
Whether a HECM Saver makes sense for you will depend on how much money you need to borrow from your home. If you have a large mortgage to pay off you may need to do the HECM Standard because it provides more money. If you are interested in setting up a Line of Credit, but do not want to incur the higher costs of the HECM Standard, then the HECM Saver may be perfect for your needs.
To compare your options today access our online reverse mortgage calculator, which will allow you to compare the options available base upon your age and home value. You will be able to determine which option may best suit your needs. Our calculator will also allow you to compare different lump sum, monthly payment, and line of credit options.