Seniors Get a Gift from the New Housing Law
Kipinger - August 4, 2008
When trying to figure out who benefits from the new housing law, don't forget to count seniors who are in the market for a reverse mortgage. These mortgages let seniors convert some of their home equity into a stream of income, a line of credit or a lump sum. The money does not have to be paid back until the last borrower sells or dies. For retirees who are house-rich but cash-poor, the new law offers some significant changes.
Homeowners age 62 and older will now be able to tap a greater amount of their home's equity. The maximum amount for a reverse mortgage has been upped nationwide by more than a quarter of a million dollars, to $625,500. That flat limit replaces the old rule that set limits from $200,160 to $362,790 depending on where the borrower lived.
Even better is a reduction in the costs for these loans. "People are pretty satisfied with the reverse mortgage product, but the biggest barrier is the high cost," says David Certner, AARP's legislative counsel and legislative policy director. Under the old law, the more valuable your home and the more equity you tap, the higher the fee could climb because lenders' fees were capped at 2% of the maximum amount of the reverse mortgage.
But with the new law, origination fees are reduced to 2% on the initial $200,000 and 1% on the remaining balance, with a cap of $6,000. (This cap is subject to future inflation adjustments.) So let's say you take out a $400,000 reverse mortgage. Under the old law, you would have paid an $8,000 fee. Under the new law, the fee drops to $6,000.
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