Reverse Mortgages — Changes Are on the Way

Limited payouts and tighter credit restriction on the way

   

Reverse mortgages have historically been a go-to source of income for people 62 and over who’ve accumulated equity in their homes. But starting October 1 it will get a bit more difficult to get that mortgage — and the payouts will get a bit smaller.

The U.S. Department of Housing and Urban Development (HUD) announced in early September that most homeowners will only be able to tap up to a maximum of 60% of their available principal in the first year of the reverse mortgage, and it’s anticipated that total principal limits will be reduced about 12% to 15%, based on the value of your home.

For homeowners looking for that big cash grab at the inception of the reverse mortgage, this puts a (smaller) cap on their drawdown. Also new is a “financial assessment” requirement, which is essentially a credit check to determine your ability to pay real estate taxes, insurance premiums, utilities and general upkeep to the property. I’ve advocated for a long time that your credit history still matters – and this is an example of why that’s true.

I’ve never been a big fan of the reverse mortgage, as I believe they are more costly, more confusing and more dangerous than advertised. But I think these changes are for the best. Tightening the credit requirements and limiting the payouts should strengthen the HUD program, which took a hit when the housing market crashed. And I’m all for protecting taxpayers against systemic market risks.

At the same time, I’m all for protecting consumers … sometimes from themselves. If you’re unable to make the payments to stay current on taxes and insurance, the endgame could be catastrophic — the loss of your home.

Make sure you understand the changes as you go forward with your reverse mortgage planning. Download this PDF provided by HUD for more information.

Marc Bastow is an Assistant Editor at InvestorPlace.com.


Article printed from InvestorPlace Media, http://investorplace.com/2013/09/reverse-mortgage-update-changes-are-on-the-way/.

©2014 InvestorPlace Media, LLC

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