HousingWire is reporting that the U.S. Department of Housing and Urban Development recently announced changes to its reverse mortgage program that raises premiums, tightens loan limits and ultimately puts the program on a stronger financial footing. The new changes will only affect new borrowers. A reverse mortgage allows older homeowners to tap their home’s equity and typically doesn’t have to be paid off until death or sale of the property. Key points:
Most new borrowers will pay bigger premiums upfront but lower ones over the life of the loan, lessening the risk to taxpayers if seniors live longer than predicted. Borrowers will now pay 2% of the amount of the home’s value upfront and 0.5% annually over the course of the loan.
Currently, most borrowers pay 0.5% upfront and 1.25% annually over the remainder of the loan. Some who borrow more than 60% of the amount they can borrow against the home in the first year already pay 2.5% upfront so they will see premiums go down slightly.
On balance, most seniors will also be able to borrow less money. The average borrower at current interest rates will be able to borrow roughly 58% of the value of their home, down from 64%.
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