Stimulus Plan Raises Reverse Mortgage Limits

[Apr 17, 2009.]

 

More senior citizens may qualify for a reverse mortgage thanks to an increased limit on these loans. The economic stimulus bill raises the single national loan limit to $625,500 from $417,000 for reverse mortgages through the Home Equity Conversion Mortgage (HECM) program. That’s good news for people who live in more expensive housing markets.

How Does It Work?

The HECM program was created by the Federal Housing Administration. The changes in the program make it easier for seniors to obtain reverse mortgages of jumbo size. Current mortgage rates are very low so qualified homeowners may find some good deals out there on reverse loans.

A reverse mortgage allows homeowners to tap into their equity and receive cash payments. The money can be paid out as monthly payments, a line of credit, or both. It doesn’t have to be repaid until the borrower moves out of their home or dies. Borrowers must keep their insurance and tax payments current while they have the reverse mortgage.

The loans can also be used to purchase a new home. Borrowers can make a big down payment on a home and use the reverse mortgage as financing.

Who Can Qualify?

Homeowners who are 62 or older are eligible to apply for a reverse mortgage. Their home should be completely paid off or have a low mortgage balance that can be paid off with proceeds from the reverse mortgage loan. Homeowners also must live in the home.

Generally, the older a homeowner is and the lower the current mortgage rates in their area, the more they’ll be able to borrow. AARP’s reverse mortgage calculator can help borrowers get an idea of how much they can borrow. The reverse mortgage calculator will ask for information such as their age and zip code.

Another requirement for obtaining a reverse mortgage through the program involves talking with an HECM counselor. People interested in applying for a reverse mortgage through the HECM can call 1-800-569-4287 to find a counselor and lender. The counseling is free, so borrowers should avoid using services that ask for fees to refer them to an FHA counselor.

Dangers of Reverse Mortgages

While reverse mortgages can be a great help to many people, there are some dangers of reverse mortgages worth noting:

—Reverse mortgages can be complicated to understand.

—There can be a lot of costs associated with reverse mortgages, such as application fees, mortgage insurance, and other closing costs.

—It might be tough for a borrower to leave a home to their kids if there isn't much equity left when they die.

Talking with an reverse mortgage counselor is the best way to get the facts on how a reverse mortgage might affect a particular borrower’s situation.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.