Reverse Mortgage Loan Blog

Over the weekend, the Senate approved housing bailout legislation that’s primarily designed to help troubled homeowners and slow the rate of foreclosures. But the legislation, which President Bush is expected to sign this week, also includes provisions that could help families who are in no danger of losing their homes.

Changes for reverse mortgages.

A reverse mortgage is a loan against home equity that doesn’t have to be repaid until you move, sell your home or die. To qualify, you must be 62 or older. If the home is owned jointly, both owners must be at least 62.

Reverse mortgages can provide much-needed income for retirees who have a lot of home equity but not much in savings, says David Certner, legislative policy director of AARP. The bill addresses two aspects of reverse mortgages that have made them unattractive to potential borrowers:

•Fees. Most borrowers pay hefty upfront fees for a reverse mortgage, which reduces the amount of money available to borrow.

The housing bill limits origination fees for federally insured reverse mortgages to 2% for up to $200,000 of a home’s value, plus 1% for the amount that exceeds $200,000, up to a maximum of $6,000.

•Loan limits. The size of a reverse mortgage is based on the borrower’s age, current interest rates and the home’s value. In the past, however, the maximum home value for a federally insured reverse mortgage was capped at $200,160 to $362,790, depending on where the homeowner lived.

Those restrictions prevented homeowners in high-cost areas from getting the most out of the equity in their homes, says Peter Bell, president of the National Reverse Mortgage Lenders Association.

The legislation raises the maximum home value to $625,500, Certner says. As a result, he says, homeowners who live in high-cost areas will qualify for larger loans.

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