Why Reverse Mortgages are Safer than Ever
It is time to clear up the dark cloud around reverse mortgages. There have been many safeguards and regulations put around this kind of loan to ensure it a safe financial tool you can trust:
Federal Insurance: The Federal Administration authorized federal insurance for reverse mortgages with the housing and community development act. For the borrower, this guarantees the availability of funds. For the lender, this assures compensation if the loan balance exceeded the home’s value.
Non- Recourse Provisions: HUD makes the reverse mortgage a non-recourse loan. This means that the property is the only collateral the loan and that there is no personal liability on the borrowers part. This protects the borrower from owing more on a loan if it turns out that it costs more than the house is worth when the house is sold.
Required Counseling: Federal law requires the candidate to receive counseling by a HUD approved counselor. This ensures that the senior receives unbiased advice.
Lifetime Reverse Mortgage: The other great thing that HUD has done for reverse mortgages is make reverse mortgage insurance available to all FHA lenders. Lenders then developed the first “lifetime” reverse mortgage program where monthly mortgage payments are taken care of for life. The borrower must also maintain the home as a permanent residence, continue to pay property taxes and insurance, and maintain the home. The lender will set aside a specific amount of money for a line of credit for any amount over the mortgage due that the borrower can access at any time.
Limits on Rates and Fees: AARP and NRMLA extended support for limits on origination fees charged by the lender. With HUD orders and federal laws firmly in place, reverse mortgage rates and fees charged to the consumer are regulated and controlled. This guarantees that there are no “excessive fees” in a reverse mortgage. The Federal Truth in Lending Act requires lenders to disclose the terms and costs of the loan, such as the APR (annual percentage rate), payment terms, and any line of credit charges.
Reverse Mortgage Purchase: This program was created by Congress to help seniors transition into a home that better suits their changing needs. This process cuts costs and makes everything more simple by combining it into one transaction.
Non-Borrowing Spouse Rights: HUD announced new rules for non-borrowing spouses to allow a non-borrowing spouse to remain in the home even after their borrowing spouse has passed.
New Rules: These changes to the Reverse Mortgage are meant to encourage seniors to tap into their equity intentionally, and use the reverse mortgage as a financial planning tool rather than a crisis management tool.
The reverse mortgage industry has been working hard to build a product worthy of our nation’s growing senior population. With these safeguards in place, a consumer can feel safe taking a reverse mortgage loan and borrowing with confidence.