Reverse Mortgages — Changes Are on the Way

by Marc Bastow | September 26, 2013 3:04 pm

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[1] – and this is an example of why that’s true.

I’ve never been a big fan[2] 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[3] provided by HUD for more information.

Marc Bastow is an Assistant Editor at InvestorPlace.com.

Endnotes:
  1. your credit history still matters: http://investorplace.com/2013/06/retirees-your-credit-score-still-matters/
  2. never been a big fan: http://investorplace.com/2013/03/reverse-mortgages-this-income-source-isnt-for-everyone/
  3. Download this PDF: http://portal.hud.gov/hudportal/documents/huddoc?id=ML13-27.pdf

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