New Rules Expected for Reverse Mortgages
There will never be a better time than now to consider a reverse mortgage.
Barry Friedman
Thinking about liquidating some investments to raise cash for emerging needs? Or is a loved one considering such a move? Now is a good time to look into how a reverse mortgage can accomplish that, says Barry Friedman, mortgage market manager of Primary Residential Mortgage in California, Md.
It’s expected that the Federal Housing Administration, the guarantor of these mortgages, will soon be tightening up eligibility requirements. At the moment, reverse mortgage applicants are not required to provide information on their income, credit and debts. The amount of the loan is based on the value of their house, their age, and the interest rate.
That likely will change this spring, with applicants needing to pass a means test that would include an analysis of their income, their credit history and their assets, matched against their living expenses and financial obligations, says Mr. Friedman.
Reverse mortgages allow homeowners ages 62 or older to borrow against their home equity and needn’t be repaid until they move out permanently, sell the property, or upon death.
“We know this theme coming from the FHA is demonstrating financial ability for seniors,” Mr. Friedman says. “The changes will be to make sure the homeowner can afford to pay taxes and maintain the home.”
Last year, the FHA imposed a limit on the amount of a reverse mortgage loan a homeowner could tap into the first year, restricting it to 60 percent of the loan amount. In the second year, the full amount becomes available. This rule change, and the ones being anticipated, are designed to minimize defaults among a vulnerable population whose most valuable asset is often the house they live in.
Robbie Loker – Reverse Mortgage expert at Primary Residential Mortgage
Robbie Loker, PRMI’s reverse mortgage loan officer, says there are any number of reasons consumers take out reverse mortgages besides the obvious plus of no longer having to make a monthly mortgage payment. One of Ms. Loker’s clients loved her cottage in Maine, but she no longer wanted to spend most winters there. A reverse mortgage enabled her to keep the cottage and take out enough money from it to buy a small condo in South Carolina, saving the money she had been spending to rent during the winters. She also has the option to rent the condo out for income during her absences.
Other clients have used reverse mortgages to consolidate credit card debt to improve cash flow, establish a tax-free income stream, pay for in-home health care, and modify their homes to improve their ability to age in place. An example of the last of these is a local couple, longtime residents of a waterfront cottage valued at $420,000, who wanted to modify the home to create a first-floor master suite with bath that provides accessibility and safety should they become less mobile. With the reverse mortgage, they qualified for $110,000 for the renovation and still had $84,000 in a line of credit. They also added value to the property with the renovation. They achieved this without taking on the added burden of a monthly mortgage payment.
The reverse mortgage also is a good alternative to liquidating investments and assets that would trigger tax consequences for the seller.
Through Ms. Loker, Primary Residential Mortgage offers the personal service, experience, and face-to-face contact that the late-night reverse mortgage pitches by aging celebrities can’t. She will conduct an analysis of a customer’s unique circumstances, provide information about reverse mortgage options, and make a referral to a HUD-approved agency for the counseling course required of anyone who wishes to apply for a reverse mortgage. Contact her at PRMI’s offices at 301-737-0001 or at [email protected].
