Reverse Mortgage – Should We Wait ?
Fees & Costs August 2nd, 2009
Up until now this was a fairly easy question to answer. The older you are, the more money you qualify for under the Home Equity Conversion Mortgage program. And when home values were climbing at 5% or better every year, the calculation was easy to make. Wait for 2 more years and receive $20,000 more…
Well, they’ve changed the rules while you were mulling it over! Or, at least they’re talking about changing them. Pay close attention if you’re on the fence about when to do your reverse mortgage because it could get ugly – real soon.
First, home values are falling (still). So at least one component used in the calculation of your dollar benefit continues to move against you. Lower value – less money for you. Second, there is a lot of talk in Congress about the mortgage insurance program used by FHA to guarantee these loans. A group of lawmakers favors increasing the already burdensome mortgage insurance fee. Higher fees – less money for you. Third, another group is proposing reducing the Principal Limit… the amount you initially qualify for and a major component of the calculation. Lower principal limits – less money for you.
But what about your age? Age is a major component of the calculation today. Presently, the older you are, the more money you qualify for. A variation on the Principal Limit reduction theme is the proposal to cap limits at some arbitrary age…say 75. Meaning once you reach that age, the amount you can expect to qualify for will no longer increase if you are older. Higher age - less money for you (than today).
Old Question – New Answer
The question remains easy to answer… but the answer is radically different. If you are seriously thinking about doing a reverse mortgage it is beginning to look like there is no advantage to waiting. As a matter of fact, if you wait you might qualify for much less money than today. Once we get the politicians tinkering with programs they know nothing about… watch out! These are, after all, the Barney Frank’s of the world who brought you the current financial mess we are in today. No problem, they say – print money! Same for the HECM reverse mortgage program. No problem – raise fees and reduce benefits!
UPDATE: Effective October 1, 2009 FHA reduced dollar benefits by 10%. If you waited, you lost!
Author – Robert H. Irving, CSA
Senior Reverse Mortgage Consultant
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