Massachusetts Reverse Mortgage Improvements Benefitting HomeownersPosted on March 25th, 2010
Reverse Mortgage News, 5 Improvements Benefitting Homeowners
1. Increased lending limits, which allows higher home values access to more equity
2. Fixed rate reverse mortgages are providing additional options to homeowners
3. Reduced closing costs as HUD reorganizes how loan origination fees are calculated
4. Reduced servicing fees, which enables the reverse mortgage to open up more equity
5. Increased competition, more public awareness, and the easy access to information provided by the internet is allowing those interested in a reverse mortgage to find companies offering the best service at the best price.
Since the inception of the Federally-Insured reverse mortgage programs (known as the Home Equity Conversion Mortgage or HECM & insured by HUD, the Housing & Urban Development) in the late 1980’s, we have not had a period of time where so many positive improvements have been made to reverse mortgages in such a short amount of time. We have recently witnessed lending limits rise, low fixed rate reverse mortgage offerings, reduced origination fees, reduced servicing fees, and a combination of competition, public awareness, and the internet allow those interested in a reverse mortgage to find companies offering the best service at the best price.
Reverse mortgage lending limits have incrementally increased over the years, but we saw our biggest increases within the last couple of years as the limit rose to a high of $625,500 & is slated to stay this high for the remainder of 2010. In summary, it took the program approximately 19 years to reach $362,790 in higher cost of living areas whereas it has taken less than 2 years for the limit to rise as high as $625,500 & be applicable to all living areas. A lending limit is simply a cap on the home value. When calculating how much equity a reverse mortgage will make available, HUD will use the lesser of the home value or the lending limit. To fully understand how the monies available are calculated, please read our discussion located at How Much You Qualify For.
Again, the last couple years have been good times for reverse mortgages, as the fixed rate reverse mortgage has become a reality. Historically, the Federally-Insured reverse mortgage programs available came with an adjustable rate. The options under the adjustable rate would allow for either a monthly or annual adjustment. The monthly adjustable reverse mortgage has been and still is more popular than the annual adjustable because the lender’s margin added to the rate is considerably lower. In the early stages of this product there were limited options, but now we have a fixed rate of 5.5%. A fixed rate reverse mortgage at 5.5% is unique as it will always maximize the amount of equity available under HUD’s current formula (please refer to link in previous paragraph for further explanation of HUD’s formula).
Another recent benefit to reverse mortgages comes in the form of a cost savings to the consumer. HUD issued amendments to their program, which reduced the origination fees. Historically, the origination fees were identical to the HUD insurance premium; however, today they are calculated as 2% of the first $200,000 and 1% of the amount exceeding $200,000 with a cap of $6,000. Origination fees cover the cost of marketing, underwriting, personnel and overhead. Recent developments have allowed the origination fees to offset the discount the loan may require when sold to an investor, which is good news for the borrower as they will receive a lower rate and more funds available.
After the reduction in the origination fees, along came a drop in the servicing fees from $35 a month down to $20-$25 a month depending upon product (for more discussion about servicing fees, please go to Reverse Mortgage Costs). This reduction not only saves money for the borrower but adds to the amount of equity available, a win-win for the consumer. The next positive step is on the horizon. Servicing fees are dropping below $20 a month for the first time in history and will possibly be as low as zero for some reverse mortgage programs.
The fifth recent benefit to reverse mortgages relates to the impact of competition, public awareness, and the internet, all of which help educate the families looking into these programs. A more knowledgeable consumer will find the right reverse mortgage for their situation at the best price from a specialized company. Proposed Congressional and State legislation will further contribute to the public awareness about reverse mortgages. The end result, reverse mortgage programs have made lots of positive progress in a short span of time. The recent downturns in the economy have impacted reverse mortgages but have also provided an environment for them to develop and mature for the better.