The Reverse Mortgage benefits have changed for HUD's Fiscal Year 2011, and what a seesaw ride the last few months have been in the Reverse Mortgage Industry. Much of the news has been doom and gloom. First, we waited for congress to sign the $250 Million appropriation that FHA was asking for, but it never came. FHA needed this money to supplement and diminishing Mortgage Insurance Fund, but congress only allowed for $150M and then reduced it to $140M. This in turn caused FHA to announce that they would lower the Principal Limit for Reverse Mortgages a second year in row.
What exactly does this mean?
In 2009, FHA announced a 10% reduction of the loan amount that a borrower receives for the Reverse Mortgage starting FY 2010 (which was Oct 1, 2010). So imagine falling values only compounded by a lower amount that can be used for seniors in need, but wait cause it gets worse! Then because of the failed appropriation I mentioned above FHA was talking about another reduction for FY 2011 to be anywhere from 5% to 20% in addition to the FY2010 reduction of 10%.
WHOA!!! WAIT A MINUTE!!! UP TO 20%???
Fortunately, this did not happen, but imagine what would have happened to the people who NEED the Reverse Mortgage and couldn’t do it! So finally FHA said it would be a sliding scale based on age. Those who are 62 would get about a 2-3% reduction and those in their 80s and 90s would get 7-10% reductions. Not bad considering the majority of Reverse Mortgages is now done by people in their 60s & 70s.
Then only 2 weeks before FY 2011 (Oct 4, 2010) FHA announced a drop in the “floor rate.” OK, another explanation. The rate of 5.5% would give the borrower the highest possible loan amount or highest percentage of their value. If you went lower it didn’t change the amount they receive, but if you went higher they would get less. So by dropping the floor rate to 5.0% the borrower can now get even more money or a higher percentage of their value. IF YOU HAVE BEEN FOLLOWING ME AT ALL AND YOUR EYES HAVE NOT ROLLED TO THE BACK OF YOUR HEAD, YOU WILL REALIZE THAT THIS WAS/IS A VERY VERY GOOD THING!
So with all the doom and gloom, the outcome was even better than if there were no change at all. Borrowers are actually getting higher percentages in FY 2011 than they were n FY 2010, but not as much as in FY 2009. Well, I can’t have my cake and eat it too, so I will be happy with the changes. The only downside is that the cost of the Reverse Mortgage's yearly MIP has increased, but this was also almost completely offset by the rate reduction.
A Reverse Mortgage now gives you more than before = GOOD NEWS!
If you would like to see how much you could receive with today’s rates and limits if you were to do the Reverse Mortgage, please click on the following link. I will get back to you as soon as possible: