Notes From the Fieldby Martin Weil

September 6, 2013

Reverse Mortgages Getting More Expensive at the End of September

Well it may have been too good to last. For the past two years or so, the costs of a reverse mortgage were at historical lows, both their interest rates and associated fees. The use of a reverse mortgage was increasingly recommend by planners, employed  as a standby line of credit for retirees living off savings and enabling them to smooth out the cash flows that were being drawn down from more volatile investment assets.

A colleague in the business, Tom MacDonald, emails me today that the costs of these loans are going up and their availability more restricted as of September 30.  Key points:

  • All fixed rate options eliminated.  The only choice will be an adjustable rate.
  • The amount of money the borrower qualifies for will be reduced by about 15%.  On top of this, interest rates are rising which also reduces the amount of money a borrower qualifies for.
  • There is a limit on how much can be taken out in the first year.
  • The Mortgage Insurance Premium charged by HUD is changing and could be higher.
  • Effective in January, 2014, there will be financial assessments for all borrowers to estimate if they will be willing and able to keep up on property taxes, homeowner’s insurance and standard maintenance. Anyone not passing the financial assessment will be required to have impounds for their life expectancy.

All in all, this sounds like reverse mortgages, for a time a very appealing option in the right situation, are going to become a lot less attractive.

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