Seniors to Find Reverse Mortgages Less Appealing with New FHA Rules

The Federal Housing Administration or the FHA has brought about new rules on reverse mortgage. Most importantly, it has brought about some pertinent changes which holds a lot for seniors. In fact, reports have it that retirement just go harder. This is mostly because of the fact that reverse mortgages now become less attractive. The new regulations are supposed to come into effect from September 30th and along with it comes the fact that taking advantage of the government’s reverse mortgage program will become difficult with every passing day.

A Clear Conception about Reverse Mortgage

Before discussing how difficult it’s about to become for the senior citizens with regards to reverse mortgage, it’s time you took a closer look at the concept of reverse mortgage clearly. Actually the name itself suggests what reverse mortgage is, or in other words, the concept happens to be self-explanatory. With a regular mortgage you end up making monthly payments to the lender concerned; whereas, on the other hand with a reverse mortgage you’d be receiving payments from the lender. In fact, the loan doesn’t really need to be repaid until death or in case of sale of the house or perhaps establishing another primary residence.

Reverse mortgages happen to be available only for people above the age of 62. As a matter of fact, this money can be used as a sort of supplement retirement income which can be used to pay medical bills, for the purpose of home improvements, or perhaps even to pay off your current mortgage. By taking out a reverse mortgage, you’d essentially be converting a part of your home equity to cash.

New Limitations Imposed on Reverse Mortgage

The Federal Housing Administration attempts to mitigate insurance losses post the historic lows of the past 2 years. Following are the changes that come into effect this fall:

  1. Changes in fees: Prior to the new changes, the upfront fee that was required to take out a standard reverse mortgage stood at 2 percent of the the property’s value. As for the upfront fee to take out a saver reverse mortgage, then it stood at 0.01 percent. However, now it’d stand at 0.5 percent across the board.
  1. The smaller loans: Previously borrowers could take out as much as 61.9 percent of their home’s value. The limit of course depended on various factors like age, the prevailing rate of interest as well as the home’s value. Even with the same evaluation being applicable now, borrowers would be able to take out 15 percent less than what was previously possible.
  1. Assessing the finances: With the new regulations, the lenders would now have to analyze the ability of the borrowers to keep up with tax as well as insurance payments before issuing a reverse mortgage. In case the lender decides you can’t make payments, then the borrower would be required to set aside money.
  1. The first year limit: Now a homeowner can withdraw up to 60 percent of the eligible sum during the first year. It wasn’t the same previously.

With so many pertinent changes coming about, the Federal Trade Commission intends to make consumers more careful about how they go about funding their retirement. The idea is to propagate the practice of taking out only what’s truly needed and is affordable.

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