The Federal Housing Administration (FHA) has announced a new modified version of Home Equity Conversion Mortgage (HECM) product.
A reverse mortgage insured by the federal government, the HECM loan allows elderly home owners to tap into their equity to cover healthcare costs and living expenses while continuing to live in their house without the need to make mortgage payments, which are needed by a traditional mortgage or equity loan.
Designed as a second reverse mortgage option, the HECM Saver aims to lower upfront loan closing costs for homeowners who want to borrow a smaller amount compared to what would be available with a HECM Standard loan.
The HECM Saver will be available for every HECM case number assigned on or after October 4.
“Despite the popularity of our HECM loan product, we have noted concerns that some senior citizens find that our fees are too high for them,” said FHA Commissioner David Stevens. “In response, we created HECM Saver which will provide seniors with a reverse mortgage option that significantly lowers costs by almost eliminating the upfront Mortgage Insurance Premium (MIP) that is required under the standard HECM option,” added Mr. Stevens.
HECM Saver will have an upfront premium of 0.01 percent of the value of the property. The HECM Standard option sets the upfront premium at 2 percent.
The MIP for both HECM Standard and HECM Saver will be charged on a monthly basis at an annual rate of 1.25 percent of the outstanding loan balance.
Upfront fees will be reduced while considerably lowering the risk to the FHA insurance fund since the principal limit or amount of money made available to a borrower under the HECM Saver programme will be cut.
Under the HECM Saver option, borrowers will get about 10 percent to 18 percent less compared to what they would receive under the HECM Standard.