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Gainesville Florida Estate Planning & Elder Law Blog

Wednesday, January 29, 2014

Changes in Reverse Mortgage Regulations Create New Opportunities

A few weeks ago we wrote here about a federal court decision that will protect surviving spouses of reverse mortgage holders. That was certainly good news, and now here is some more.

While reverse mortgages were historically viewed with caution and trepidation, that may now be starting to change thanks to regulatory changes making them more understandable and applicable to retirees. 

Historically, there were generally two primary reserve mortgage options: the traditional reverse mortgage, known as a Home Equity Conversion Mortgage (“HECM”), and the HECM Saver, which had a lower payout of equity but fewer upfront fees. But those options became outdated last year. Moving forward, all new mortgages will have to conform to regulations which will provide better clarity and flexibility to retirees.

New reverse mortgages will use a contract structure similar to a purchase money mortgage. Seniors will face a much tighter standard principal limit factor – the amount of equity one can withdraw from a residence. Under old regulations, people could remove the entire equity in a home, but now the limit is 70% of existing equity. 

That means reverse mortgages may no longer serve as well in a financial emergency. However, new reverse mortgages will have flexibility of payment. Specifically, one can take a partial withdrawal of equity one year, for example when the stock market is high and capital gains would be detrimental, without being required to take additional payments in the future unless desired. In easier-to-understand terms, the new reverse mortgage is similar to a home equity line of credit.

There remain many other factors in considering a reverse mortgage – not the least of which is what impact it may have on any aid you may already be receiving. At Boone Law, we deal with these kinds of issues daily. If you’re uncertain about what steps to take, please talk to us before you do anything.


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