HUD Help for Seniors: A Lower-Cost Reverse Mortgage

When William Shatner played Captain Kirk on the Starship Enterprise, he was a young hunk guiding people to “boldly go where no man has gone before.” Now, the 79-year old senior citizen is guiding people to better financial sense by saying, “If saving money is wrong, I don't want to be right!” The Federal Housing Administration (FHA) must be listening, because they’ve just lowered the upfront costs of reverse mortgages, which will help seniors save money when they tap their home equity.

Understanding reverse mortgages

An FHA reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), allows seniors over the age of 62 to tap into their home equity in a primary residence without paying the money back until they either move or pass away. If you qualify, you can take the money in monthly payments, as a line of credit, or as a combination of the two. The amount that you’ll be eligible for depends on your age, the mortgage rates at the time of the HECM’s closing, and the appraised value of your home.

The drawback with reverse mortgages has always been the costs – they’re expensive! According to the AARP Reverse Mortgage Guide, the total costs for a 75-year old borrower in a $250,000 home could be as high as $25,000. The price to younger borrowers in more expensive homes could be significantly higher – as much as $45,000 for all non-interest costs.

FHA cutting the pain

As of October 4, 2010, the FHA will offer a new, lower-cost option called the “HECM Saver,” which lowers one of the costs – the upfront mortgage insurance premium (MIP) from 2 percent to only .01 percent of the property’s value. Translated into common dollars and sense, the upfront MIP on a $300,000 home would be $6,000 on the old HECM Standard, but only $30.00 on the new HECM Saver. (William Shatner must be jumping for joy.)

There is a small price to pay for this privilege. The amount of money available to borrowers who choose the HECM Saver will be about 10 to 18 percent less than that available to borrowers who choose the HECM Standard. The price reduction can be accomplished because it significantly lowers the risk to the FHA.

Steps to a reverse mortgage

If a reverse mortgage sounds a bit more attractive now that they’ve reduced the upfront MIP, take the following steps to get more information:

1. Visit HUD’s website to get more information about reverse mortgages.
2. Contact a HECM reverse mortgage counselor online, or call (800) 569-4287 to speak to one directly.

When William Shatner became the spokesperson for Priceline.com, he turned his passion for saving money into a lucrative career in advertising. Follow his lead by taking advantage of the new HECM Saver. It just may be the right vehicle for you to get money out of your home for a lot less money upfront.