Dec 13, 2010

Modified version of Reverse Mortgages: Good option for the elderly homeowners

In October, the Federal Housing Administration that runs the reverse mortgage program known as Home Equity Conversion Mortgage, or HECM, introduced the Home Equity Conversion Mortgage Saver, or HECM Saver. HECM Saver, trims the upfront insurance premium due at closing to 0.01 percent of a property’s value, from 2 percent. But the amount that can be borrowed is also reduced, by 10 to 18 percent, compared with the standard HECM loan program.

To better understand the modified version of a reverse mortgage, we need to know what reverse mortgage is. Reverse mortgage is a type of mortgage in which homeowners can borrow money against the value of their house. Until the borrower dies or the house is sold, no repayment of interest or principal, is required. Often, the lender will require that there can be no other liens against the home. Any existing liens must be paid off with the proceeds of the reverse mortgage.
The loans don’t require a minimum credit score or have income limits. But borrowers cannot be underwater, or owe more on a current mortgage than the property is worth. Among the other restrictions is the age. Anyone who is an owner, and is listed on the title to the property, must be at least 62.

Since these reverse mortgages have large origination costs compared to other types of mortgage and since these costs become part of the initial loan balance and accrue interest, Senior citizen borrowers with good credit should carefully analyze the options of a more traditional mortgage, such as a home equity loan, against a reverse mortgage.

Consumers Union, the independent nonprofit testing organization that publishes Consumer Reports, says cash-needy homeowners should consider a home-equity loan before a reverse mortgage, because of the high closing costs and insurance fees. To read more about this click here

Analysts at PrivoCorp suggest that elderly homeowners find out options from their loan officers and grab this opportunity to get a loan. PrivoCorp does not originate loans. We process loans.

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