HUD Makes Reverse Mortgages Less Attractive

The Department of Housing and Urban Development (HUD) has made changes to the federal reverse mortgage program. Citing the need to put the program on better financial footing, HUD has raised reverse mortgage fees for some borrowers and lowered the amount homeowners can borrow. The changes took effect on October 2, 2017.
HUD has changed the mortgage insurance premium fees that homeowners pay in order to obtain a loan. Formerly, the homeowners paid 0.5 percent of the value of their home as an upfront mortgage insurance premium on smaller loans, but homeowners who took out a loan that was more than 60% of the home’s value paid a 2.5 percent premium. The new rule requires all homeowners to pay a standard 2 percent upfront mortgage insurance premium. To offset the upfront costs, the annual mortgage insurance premium rate has been dropped from 1.2 percent to 0.5 percent.
In addition, HUD lowered the amount that homeowners can borrow. The average a borrower at current interest rates can now borrow is only around 58 percent of the value of the home, down from the 64 percent previously allowed. A reverse mortgage does not have to be repaid until the homeowner moves, sells or dies. With our aging population living longer, changes to these formulas should continue to be anticipated.
Ms. MacDonald’s practice is limited to Estate Planning, Probate & Trust Administration. Ms. MacDonald maintains her practice in the Santa Clarita Valley at 25115 Avenue Stanford, Suite A-209, Valencia, California. She can be reached at 661-294-6464.