HECM “Saver” has Arrived
Friday, 01 October 2010 18:07
HEADLINE:  HECM “Saver” has Arrived
Reverse Mortgage industry professionals had been expecting an announcement for several  months.  But not until the very end of September did HUD/FHA introduce a new variation of the Reverse Mortgage called the “HECM Saver”.  The prior type of loan still exists and is now called the “HECM Standard”.
HECM stands for Home Equity Conversion Mortgage,  a federally insured  Reverse Mortgage -- a financial tool that allows borrowers ages 62 and older to access a portion of the equity in their home, without selling, giving up title or making monthly payments.
For a Reverse Mortgage, it is largely the home that “qualifies”, not the homeowner, since there are no credit or income qualifications and no requirements to prove net worth.  The amount of money available to the borrower depends upon four things. The age of the youngest borrower on title, the lesser of $625,500 or the current appraised value of the home and the  ”principal limit factors” associated with the selected loan program.
In either the Saver or Standard programs, available monies can be paid to the borrower in a lump sum (required for all Fixed Rate loans); or a fixed amount per month (called “term”; or an amount per month over the borrower’s expected life time (called “tenure”); or a line of credit to withdraw money on an as-needed basis, or a combination of these choices.
Title to the home always remains in the borrower’s name.  The loan is due and payable when the last person on title leaves the property or passes away.  If the property is bequeathed, heirs can either sell the home or refinance the home and pay off the mortgage. Any appreciation in home value is always THE BORROWERS – not shared with the lender in any way.
Historically, costs to obtain  a HECM Reverse mortgage were relatively high since the biggest element of cost was the upfront mortgage insurance premium (MIP)  paid to the government.   As this was a major drawback for many borrwers,  the newly introduced HECM Saver, nearly eliminates the upfront MIP and at the same time lowers the amount of monies available under this new loan program.  Both the HECM Saver and HECM Standard programs now set the ongoing MIP (collected on loan proceeds) at 1.25%.
What does this all mean?  There is now a Reverse Mortgage option for borrowers who may need access to some equity but who want much lower upfront costs.  This can be a great solution for someone who simply needs to pay off an existing equity line or wants access to funds for small remodeling projects or just wants access to the nest egg sitting in their home.
HOWEVER, not all lenders are offering the HECM Saver loan program.  And those that are have introduced the loans with interest rates at least ½ a point higher than available under the HECM Standard program.
Every borrower would benefit from a healthy analysis of their personal situation.   There should be no immediate assumption that one type of loan is better than the other.
This analysis is best done by someone who understands the nuances in product offerings and differences in lender pricing.
I specialize in turning “gobbledygook” into “AHA – now THAT makes sense!”  I focus on education first (these articles are a start) and explain the variety of choices and details.  If you would like a no-obligation consultation, please contact me at my office at 650.591.4430.
Judy Schwartz
Reverse Mortgages Only

Reverse Mortgage industry professionals had been expecting an announcement for several  months.  But not until the very end of September did HUD/FHA introduce a new variation of the Reverse Mortgage called the “HECM Saver”.  The prior type of loan still exists and is now called the “HECM Standard”.

 

HECM stands for Home Equity Conversion Mortgage,  a federally insured  Reverse Mortgage -- a financial tool that allows borrowers ages 62 and older to access a portion of the equity in their home, without selling, giving up title or making monthly payments. 

For a Reverse Mortgage, it is largely the home that “qualifies”, not the homeowner, since there are no credit or income qualifications and no requirements to prove net worth.  The amount of money available to the borrower depends upon four things. The age of the youngest borrower on title, the lesser of $625,500 or the current appraised value of the home and the  ”principal limit factors” associated with the selected loan program.

In either the Saver or Standard programs, available monies can be paid to the borrower in a lump sum (required for all Fixed Rate loans); or a fixed amount per month (called “term”; or an amount per month over the borrower’s expected life time (called “tenure”); or a line of credit to withdraw money on an as-needed basis, or a combination of these choices.

Title to the home always remains in the borrower’s name.  The loan is due and payable when the last person on title leaves the property or passes away.  If the property is bequeathed, heirs can either sell the home or refinance the home and pay off the mortgage. Any appreciation in home value is always THE BORROWERS – not shared with the lender in any way.\

Historically, costs to obtain  a HECM Reverse mortgage were relatively high since the biggest element of cost was the upfront mortgage insurance premium (MIP)  paid to the government.   As this was a major drawback for many borrwers,  the newly introduced HECM Saver, nearly eliminates the upfront MIP and at the same time lowers the amount of monies available under this new loan program.  Both the HECM Saver and HECM Standard programs now set the ongoing MIP (collected on loan proceeds) at 1.25%.

What does this all mean?  There is now a Reverse Mortgage option for borrowers who may need access to some equity but who want much lower upfront costs.  This can be a great solution for someone who simply needs to pay off an existing equity line or wants access to funds for small remodeling projects or just wants access to the nest egg sitting in their home.

HOWEVER, not all lenders are offering the HECM Saver loan program.  And those that are have introduced the loans with interest rates at least ½ a point higher than available under the HECM Standard program.

Every borrower would benefit from a healthy analysis of their personal situation.   There should be no immediate assumption that one type of loan is better than the other.This analysis is best done by someone who understands the nuances in product offerings and differences in lender pricing. 

I specialize in turning “gobbledygook” into “AHA – now THAT makes sense!”  I focus on education first (these articles are a start) and explain the variety of choices and details.  If you would like a no-obligation consultation, please contact me at my office at 650.591.4430.

Judy Schwartz
Reverse Mortgages Only