Last time, I wrote about the introduction of a new type of government-backed Reverse Mortgage called the  HECM “Saver”.  HECM stands for Home Equity Conversion Mortgage,  a federally insured  Reverse Mortgage.  The “Saver” is a newly introduced “loan product” that offers less proceeds but at a lower cost than other available Reverse Mortgages.

A Reverse Mortgage is a financial tool available only to homeowners ages 62 and older to access a portion of the equity in their home, without selling, giving up title or making monthly payments.  The new “Saver” loan became available in October;  the former HECM  loan is now known as the “Standard” and still continues to be offered.  

The  “Saver” was developed to address a different need – borrowers who are looking for less in proceeds but at a much lower cost compared to the Standard.  This week,  I thought it would be helpful to review who might benefit from this new type of loan.  In all the examples below,  I am basing my information on a home value in excess of $625,500 – the national lending limit.

Rose is an 80 year old, still in excellent health with a long life expectancy given her family history.    Over the years, she has tapped her equity line for approximately $100k and now wishes that she were not making monthly payments of $500 – she could benefit from the increased cash flow.   At 80, her $650k home qualifies for approximately $350k in HECM Saver loan proceeds ($430k for HECM Standard). By using a Reverse Mortgage to pay off her current equity line, she will increase her mothly cash flow by $500 per month, and she has access to a $250k “nest egg” to use on an as-needed basis as she “ages in place”. And,  she will save approximately $12,500 in the upfront Mortgage Insurance Premium (MIP) which is government-mandated on HECM loans.

Karen is looking for an option for her Dad who is 93 and  requires 24/7 care to address his medical and companion needs.   At 93, he qualifies for approximately $370k for the Saver and $465k for the Standard loan products.  But given his longevity (he is admittedly in poor health), accessing the lesser amount ~$370k under the Saver program makes a whole more sense to benefit from the lower upfront costs (and preclude paying the approximate $12,500 MIP)

One final example, Michael and Susan are both 63.   Michael lost his job several months ago and is not optimistic about his employment future.   While Susan still works, they are depleting their savings to supplement thier income needs in order to continue paying their mortgage.  Both are hoping/planning to sell their home in two years and move closer to the grandchildren.   At 63, the couple qualifies for approximately $370k under the HECM Standard program and $320k under the HECM Saver program.   Since their current mortgage balance is $250k,   they can obtain enough money under the HECM Saver program to pay off their current balance and still have access to a nest egg.   And since they are planning to move in two years,  they will benefit from reduced closing costs.

As with all Reverse Mortgages, 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.

What does this all mean?  There is now a Reverse Mortgage option for borrowers who may need access to some equity but who are looking for much lower upfront costs.  Every prospective borrower would benefit from a robust 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!”  If you would like a no-obligation consultation, please contact me at my office at 650.591.4430.

Judy Schwartz
Reverse Mortgages Only