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2 Ways Reverse Mortgages Are Safer in 2018

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As hard-working Americans, we know that nothing is free. But what if there was a loan purely designed to recognize the work you’ve put into building equity in your home through years of making mortgage payments? And now in your retirement, this loan will pay you back, in cash.

You may have heard of it, a Reverse Mortgage, a loan type that pays you by converting the equity of your home into cash WHILE you live in the home. You qualify for this type of loan if you are 62 years or older and the home is your primary residence. The biggest difference of a Reverse Mortgage from any other loan is that you don’t have any monthly interest to pay, the reverse mortgage simply pays you.

In order to mitigate the previous risks that this type of loan contained, recent changes in legislation have reshaped it to become less of a lottery ticket, and instead a practical means of financial support. So what new legislation has now made this type of loan a bona-fide cash option?

Two redeeming fixes.

Previously, lenders could issue exorbitantly high annual Mortgage Insurance Premium (MIP), and allowed the populace to borrow up to the full value of the home. The results, less cash for the borrower because of the high fees and increased risk that a home owner could lose their home by using up all their equity. Last year (2017), changes were made by the U.S. Department of Housing and Urban Development (HUD) to remedy these two pain-points:

The annual Mortgage Insurance Premium (MIP) was decreased from 1.25% to 0.05% to provide “relief for all borrowers in the program, and preserve more equity for borrowers over time by slowing the rate at which the loan balance grows,” HUD said.
The new legislation decreased the Maximum Claim Amount (MCA) to 66% to “preserve the homeowners’ equity within the home.” This way, the new limit secures the borrower’s ability to continue living in the home by preserving the equity in their possession.

All in all, the key changes get you more money in your pocket, and most importantly, your house is still your house.

So, all that’s left for you to worry about is how you’ll spend the extra money in your pocket; will it be adding a cushion to your savings for retirement, helping pay for your grandchild’s education, or even pursuing the passions you’ve built your whole life upon?