Here are the Reverse Mortgage changes coming for loans made after Oct. 2:
There will be new limits on the total amount you can borrow through a reverse mortgage. Today, the average reverse mortgage borrower can draw 64% of home equity, but that will drop to about 58%, according to the Wall Street Journal.
The upfront mortgage insurance premium for most reverse mortgage borrowers will soar. Premiums for those taking less than 60% of the loan proceeds upfront will go from the current 0.5% to 2% of the “maximum claim amount.”
The upfront mortgage insurance premium will fall slightly for people taking more than 60% of the loan proceeds upfront. It will drop from 2.5% to 2.0%.
Annual mortgage insurance premiums will drop. The annual premium will fall from today’s 1.25% of the outstanding balance to 0.5%. This change “preserves more equity for borrowers over time by slowing the rate at which the loan balance grows,” the HUD press release said.
The reverse mortgage industry hopes to be able to work with HUD to prevent or scale back the upcoming changes and adopting other changes. “There are greater opportunities to make the program work efficiently rather than reduce the benefit to consumers and charge them more,” said Bell.
One idea the industry favors: finding ways to make the process quicker, less expensive and more efficient if a home with a reverse mortgage goes into foreclosure.