Common Myths – 6
Common Myths September 11th, 2009
6 – Wait a few years and get more money. This is a new myth circulating among well intentioned but ill informed friends, relatives or advisors. It’s beginning to look like waiting is a very poor strategy even though calculations are partially based upon age.
Legislation before both the House and Senate propose changes to HUD’s Home Equity Conversion Mortgage program that would reduce the loan to value ratio (principal limit) seniors might expect. The bill before the House proposes a 10% cut. Legislation proposed by the Senate appropriations bill would limit the cut to 5%. In either case, the result is the loss of tens of thousands of dollars to most seniors. The Senate version also rolls back the $625,500 lending limit to previous levels. Seniors with higher value homes would lose even more money under this proposal
These bills still need to go before a conference committee to work out a compromise. But the sentiment among lawmakers is clearly to reach a ‘net zero subsidy rate’ goal for HUD. A request for $800 million by HUD to subsidize possible future losses triggered this and the legislators will “fix” the problem by lowering dollars seniors can receive.
Another proposal is to increase the mortgage insurance premium paid to FHA to .75% monthly. 3/4 of a point would be added to the interest rate in order to supplement the mortgage insurance fund. The rate is currently 1/2 point.
Add to this the continued decline in home values in most regions and it becomes clear that waiting is a very bad strategy. I see it every day and it is heartbtreaking…seniors who wait too long and when they are finally ready to move forward with a reverse mortgage find that they do not qualify because their home value is too low and their mortgage balance is too high.
Author – Robert H. Irving, CSA
Senior Reverse Mortgage Consultant
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