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The current Reverse mortgage product has been refined considerably since it was initially approved by the US Senate in 1983. This product is now much more transparent and borrower friendly than its predecessors.
More recently, beginning in 2010 several changes were looked at as a result of the recession. In 2014 HUD introduced guidelines that made the reverse mortgage product safer and stronger.
The current loan limit for Home Equity Conversion Mortgage (reverse) is $1,089,300. The amount that can be borrowed is based on the age of the younger spouse, interest rate & the home’s value in conjunction with the loan limit above. Interest rates are lower for properties that have higher values. Rates for fixed 30 year reverse refinance loans with 780+ FICO as of writing this article started over 1 point lower than conventional refinance rates with the identical scenario, yet historically these rates are equal or higher.
The borrower must be 62+ years old to be considered for the reverse loan product, yet a spouse younger than 62 can simply be listed as a non-borrowing spouse, although the principal amount offered on the loan will be based on the youngest of the two. Borrowers must also own the property outright or have paid a substantial amount of the mortgage (at least half); although rising home values can help with this as well. The property must be occupied as the borrower’s primary residence with no outstanding federal debt.
Borrowers remain responsible for property taxes, homeowners insurance and HOA dues (if applicable) and must complete HUD approved counseling.
- Funds from this product are not taxable.
- Funds can be used for any purpose.
- In 2023 the average SS check is $1694/mo, equity can be a valuable way to meet financial obligations.
- Interest rates can be lower than other lines of credit of equity or home refinance products.
- May eliminate the need to cash-out investments for income that carry heavy tax penalties.
- Flexible ways to receive money, lump sum, monthly payment, line of credit or a combination.
- Interest can't be written off on taxes.
- Loan fees tend to be higher than conventional loans.
- If loan balance exceeds the home’s value at time of death or departure from home, heirs may need to deed home back to the lender.
- Upon the death of a borrower others living in home have limited amount of time to refinance or sell home.