The good & the bad from recent HECM changes
**CORRECTION** In this piece I inadvertently referred the previous ongoing FHA insurance rate being 1.25% per month prior to October 2nd, 2017. To clarify, I should have stated the ongoing annual MIP was 1.25%. As always, the ongoing MIP is calculated on the proration of the annual rate applied to that month’s outstanding loan balance. My apologies for the confusion- Shannon
The new rules for the federally-insured reverse mortgage that went into effect October 2nd have resulted in much consternation, confusion, and in some cases hyperbole on the part of financial pundits. What nuggets of truth can we glean from the most recent HECM reforms?
1- Upfront costs are substantially increased. Contrary to what some bloggers assert, recent changes do not raise overall costs in exchange for less money. Sure, one could argue that initial costs have spiked, but that ignores the dramatic reduction of ongoing loan costs- those that have the biggest impact on equity consumption, recurring fees, and interest charged. While origination fees are quickly returning and the upfront FHA insurance premium is much higher for those using less than 60% of available funds, the ongoing savings should not be overlooked.
2. Ongoing costs are dramatically reduced. While HECM borrowers are not required to make payments, the growth of the outstanding loan balance should not be ignored. The previous…