If you aren’t familiar with what a reverse mortgage is, it is a pretty simple concept and is just like what it sounds like. Homeowners release their home as collateral, and give it up to the bank when they die. Sound too good to be true? It really is true, but think about the freedom that it gives those older homeowners who are not planning to buy another home, can’t afford their medicines, and are tired of considering the possibility of refinancing, which is the last thing that those above 60 years of age want to even think about.
FHA is responsible for designing the HECM Saver, which is another reverse mortgage option that can lower the up-front cost for those who wish to take this type of loan, and those who need to borrow less than the full amount of what their home is worth. The standard loan will enable the homeowner to get up to a certain amount of their equity. The other good news is that these loans will be available to those who are assigned a case number on or before October 4th.
The thoughts behind the HECM saver was that it was to help lower the costs for the senior citizen getting the loan, by reducing or nearly eliminating the mortgage insurance premiums. Remember, the key word here is nearly eliminating, but not getting rid of them altogether. However, the mortgage brokers insurance premium is geared to only be 0.01% of the home’s value. For those who get the HECM standard loan, the mortgage insurance premium will still be at 2%. Either way, for both loans, the mortgage insurance premium is being charged on a monthly basis at 1.25%.
The amount of money available to the borrower under the HECM saver option also means that these borrowers who choose this option will have access to less money, with their borrowing capacity being at 10 to 18% less than what they would be able to borrow under the standard plan. This is not necessarily a bad thing, as in general more people need to adopt the idea that they should only borrow what they need.
Any borrower who wishes to partake of the HECM saver loan can take the funds all at once, establish a line of credit, and request fixed monthly payments as long as they reside in their home. Interest does accrue once the borrower takes the funds, but the loan does not need to be repaid until the borrower dies. If the balance does exceed the value of the home at that time, then the FHA insurance will make up the difference.