Home Equity Conversion Mortgage Limits Raised

[Nov 18, 2008.]

Earlier this month, the U.S. Department of Housing and Urban Development announced that Home Equity Conversion Mortgage (HECM) loan limits will be raised to $417,000 nationally. For most parts of the country, this is a substantial increase.

Home Equity Conversion Mortgages are Federal Housing Administration-guaranteed reverse mortgages for homeowners 62 and older. They allow seniors to borrow against the equity in their home. Options range from receiving a lump sum payment to receiving monthly payments.

Although they've been available since 1989, they have only recently become more popular. The rising cost of consumer goods and the erosion of retirement account values have forced many seniors to explore their options to help make ends meet.

Those seniors that have substantial equity in their homes can choose to access that money without moving or selling their house. In the past, low loan limits kept many seniors from looking at this option. With the new limits, more seniors will be able to access the equity they need to supplement their retirement income.

There are, of course, downsides to a home equity conversion mortgage.

According to Mark Schmidt, a reverse mortgage specialist at First Reverse Financial Services, "These are expensive loans, they are not a cheap alternative."

The costs are often comparable to selling a home and can add up to roughly 10 percent of the loan amount. Most experts, as a result, advise seniors to only explore HECM's when planning on staying in their home for more than 5 years.

For many parents, passing a family home, owned free and clear, on to their children is a dream. If they take on a home equity conversion mortgage, the children will either need to payoff the amount that was borrowed or let the home be sold.

"The generation we're working with, they don't want a mortgage, they don't want any debt and they want to leave something for their kids," Kris Voyles, regional reverse program manager for Wells Fargo, said. "But the kids are saying 'Mom and Dad, I don't want you to struggle.' "

About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges. He can be contacted by visiting his personal site, GoodCreditLiving.com.