If you’ve been researching Reverse Mortgage programs you’re certain to have heard about changes happening October 2nd. In fact, the last 2 weeks of September have found nearly every National Reverse Mortgage counseling service completely booked so that those seeking counseling prior to program changes have little opportunity to make the deadline. Does that mean everyone is out?
Of course not! Yes, certain parameters for the HECM’s (Home Equity Conversion Mortgages) are changing. And it’s not all bad. There are essentially three program changes. Take a look!
First Change: Upfront Mortgage Insurance Premium will increase for some borrowers and be lowered for others.
Previously, the Upfront Mortgage Insurance Premium (UFMIP) for the FHA insured HECM was 2.5% of the loan amount when a borrower took 60%+ of loan proceeds upfront. A borrower utilizing less than 60% of loan proceeds paid an UFMIP of 0.5%. The new changes find that all borrowers will pay a flat 2% of the proceeds for UFMIP.
Previously – A $100,000 loan utilizing less than 60% of the proceeds, UFMIP was $500.
Previously – A $100,000 loan utilizing more than 60% of the proceeds, UFMIP was $2500.
After October 2, 2017 – $100,000 loan, no matter the utilization, UFMIP is $2000.
Second Change: Ongoing mortgage insurance premiums will be lowered.
Historically, the annual mortgage insurance premium (MIP) was 1.25% of the outstanding loan balance. After October 2, 2017 new loans will be charged 0.5% of the outstanding loan balance for MIP.
Previously – A $100,000 outstanding loan balance featured an annual MIP of $1250.
After October 2, 2017 – A $100,000 outstanding loan balance featured an annual MIP of $500.
This could yield thousands of dollars of savings each year.
Third Change: Principal limit factors change, affecting the amount of home equity available.
This change has received the most attention which is the reduction in the Principal Limit Factors (PLU). These factors dictate how much a borrower can borrow from the available equity in their home. Here is a chart that displays a few examples.
These changes are designed to provide longevity to the program. With reduced available gross loan amounts borrowers and/or their heirs may be more inclined to refinance or sell their homes when it comes time to pay off the loan since the potential balances would be lower and more equity might be realized. This would reduce the number of mortgages transferred to FHA and reduce the cost to administer the program. And the circle of life can continue with FHA HECMs firmly in place.