A reverse mortgage is a loan taken by a person who is at least 62 years old against the value of their home.
The borrower receives a sum from the bank up-front which does not have to be repaid until the borrower moves, sells the home, or dies.
Near the end of 2017, the Department of Housing and Urban Development announced several changes to the program which is administered by the Federal Reserve.
Some of these changes may make a reverse mortgage a less attractive option to some.
Previously, the mortgage insurance premium fee a homeowner pays was to be based on the amount they were borrowing. Originally, a homeowner would pay 0.5% of the home’s value towards this fee unless they were borrowing more than 60% of their home’s value. In the latter instance the fee was 2.5%.
Now, this fee is a flat 2% for all borrowers.
It is also worth noting, the annual mortgage insurance premium rate will decrease from 1.25% to 0.5% in an effort to offset the increased up-front costs to borrowers.
The amount that can be borrowed has recently decreased.
The sum maximum sum allowed is determined at the time of the loan by examining the value of the home, then current interest rates, and the age of the borrower. Due to higher interest rates, the average 2018 reverse mortgage is expected to be around 58%.
Reverse mortgages can be a useful tool.
However, like most loans, a reverse mortgage is not a perfect product and should not be entered into until all of the factors, risks, etc. have been examined and explained to the borrower.
To examine your options contact Abraham & Bauer today.
Planning ahead is a gift to your loved ones!
Mr. Abraham is an experienced attorney and founding member of the Law Office of Richard K. Abraham. The Sparks, MD office of the firm concentrates its practice in Estate Planning, Elder Law, Probate, Medical Assistance (Medicaid), Guardianship, Asset Preservation and Fiduciary Representation.
He is an active member in a number of professional organizations that focus on law, the senior community, and estate planning. He works with clients in Central Maryland, especially in Towson, Hunt Valley, Lutherville/Timonium, Parkville, White Marsh, Bel Air & Northern Baltimore City.
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