The Federally insured Reverse Mortgage (RM) or the Home Equity Conversion Mortgage (HECM) has always had a cap set on the value they will accept on appraisals. For 2019 this cap has been set to $726,525. If you apply for a RM and your home was to appraise for $800,000, the program will only recognize it as appraising for $726,525 because it is their limit. This value, plus the borrower (s) age (s), and the current rate will be used to calculate the amount of money you can access. For example, if the youngest borrower is 80 years old, and has a home value of $800,000, based on current rates the reverse mortgage would allow the borrower to access over $418,000 of their equity (using the HECM Annual rate); this amount is what is available after the RM fees are taken out (These figures are not guaranteed and change as the rates adjust). Of course, the borrower(s) must continue to pay their property taxes and home insurance and keep the home in proper repair, but with a RM there is no required monthly mortgage payment to make any longer.
CHANGE SET FOR 2020
The Department of Housing and Urban Development (HUD), just announced via Mortgagee Letter 2019-20 that the Lending limit or cap for reverse mortgages will be $765,600 for 1 to 4 unit primary resident, residential properties. The new loan limit will take effect for loans with case numbers assigned on or after January 1, 2020, through December 31, 2020, as specified by HUD. A case # is what is assigned through the lender after the borrower (s) complete their mandatory counseling by an approved 3rd party HUD counselor before starting a reverse mortgage. This counseling session is usually 45 to 60 minutes, typically done over the phone and reviews the options available to borrower(s) including selling their home, refinancing with a traditional mortgage, or refinancing with a reverse mortgage.
HOW MUCH MORE CAN I EXPECT TO GET IN 2020?
Using the same example of an 80-year-old borrower and a home value of $800,000, having the same interest rate and a case # assigned after 1/1/2020, the borrower could expect to receive $440,481 on the same scenario; this would be an increase of over $22,000 in net funds available. This money can be taken out and used when available.
HOW MUCH MONEY WOULD MY LINE OF CREDIT GROW IF LEFT UNTOUCHED FOR 1 YEAR or 2?
If the borrower were to elect to leave this money in a RM line of credit (LOC) which pays around 5 ½% compound growth annually this would increase the money available by $1,236.48 after a year. The total amount of compound growth on the money left in the RM LOC based on a starting amount of $440,481 would be an additional $24,226.46 after leaving it untouched for a year. If this money in the LOC, now at $464,707.46 were to be left untouched for another year at 5.5% growth rate would increase by another $25,558.91 making the new total in the LOC available at $490,266.37 (These figures are not guaranteed and change as the rates adjust) . The lending limit changes may not seem that significant, but when you combine it together with the Line of Credit Growth Rate on the HECM ANNUALLY adjusting rate, you can see that it may significantly amplify the funds available year after year. The credit line growth rate goes up or down with the annually adjusting interest rate charged for the money taken out on a RM. If the Annually Adjusting rate drops by ½ % then the Annual Growth rate also drops by ½%. If the Annually Adjusting rate increases by ½% then the Annual Growth rate also increases by ½%.
For more information about setting up a reverse mortgage to provide another income stream in retirement, contact: Robert Krepps, NMLS # 255191, at HighTechLending Inc, at firstname.lastname@example.org or 877-567-7476.
HighTechLending Inc, NMLS # 7147, is an Equal Housing Lender. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act.