Reverse Mortgage Loan Blog

Major changes have come at last to the amount of money that people can now receive from a reverse mortgage. The main change is that now HUD is required to take 10% out of each one.

This change comes some months after the lending limits had been raised to $625,500 for a new FHA reverse mortgage. Recent discussions in Congress were debating whether or not to subsidize the HUD reverse mortgage program called a Home Equity Conversion Mortgage (HECM).

A Reverse Mortgage Shortfall Brought the Reduction

This was the first year that the program had come up short, and discussions were started to subsidize the additional $798 million. Instead, proposals were made to reduce the amount of the reverse mortgage money that would be eligible to be given to seniors.

HUD released a new letter announcing the new changes in the Mortgagee Letter 09-34. The letter revealed that all new reverse mortgages dated after October 1, 2009 would be reduced by 10%. This drop in available money is expected to cover the shortages recently felt by the changing economy.

Decision Made by Several Large Agencies

The decision to reduce the amount of cash available was worked out by several large agencies. Those involved were the National Reverse Mortgage Lenders Association (NRMLA), AARP, and the FHA.

The decision was primarily based on the understanding that Congress is very unlikely to authorize any subsidization at this time. In order to prevent further financial problems, the cut off date mentioned above has been chosen and the 10% reduction will affect any reverse mortgage made after October 1.

How a Reverse Mortgage Works

A reverse mortgage works in the opposite way of a traditional mortgage. Instead of the home owner making payments to the lender, the lender is providing payments to the homeowner.

The homeowner can receive payments in a variety of ways, with the overall intent to provide a retirement cash flow from the equity that has been built up in the home over the years. This includes lump sum amounts, monthly payments, or a line of credit. A combination of all three is also available to enable the homeowner to create an excellent financial package for the retirement years.

When a reverse mortgage is created, the owner is free to live in the home for as long as desired. The owner retains ownership and may even sell it. If sold, however, the full amount of the reverse mortgage becomes due immediately.

Higher Reverse Mortgage Lending limits Are Available

The lending limit of $625,500 was extended until the end of 2009. Homeowners can receive up to that amount for their home for a reverse mortgage and they are insured by the FHA. This figure was increased after the recent economic crises to enable homeowners of higher-priced homes to be able to get a reverse mortgage and then downsize to a smaller and more manageable home.

Reverse mortgage loans are an excellent way to be able to enter your retirement years and be able to continue to have a comfortable cash flow. Since there are only two requirements, they are rather easy to get. In order to qualify, you must be at least 62 years old, and you must also have more equity in your home than you still owe the bank. You can easily discover about how much you could receive from a reverse mortgage calculator.

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