Single Product Option
There is one product option available to consumers. The maximum amount of loan proceeds you may access during the first 12 months after closing is equal to 60 percent of the full loan amount. For example, if you are eligible for a $100,000 loan, you may only access $60,000. After the initial year has expired, you may use and much or as little of the loan proceeds as you wish.
There are exceptions. You can withdraw a bit more if you have an existing mortgage, or other liens on the property, exceed the 60 percent limit. You must pay off these "mandatory obligations" as the government calls them, before qualifying for the reverse mortgage. You can withdraw enough to pay off these obligations, plus another 10 percent of the maximum allowable amount -- in which case that's an extra $10,000, or 10 percent of $100,000.
A new upfront Mortgage Insurance Premium (MIP) structure has been created. The fee is based on the amount of funds withdrawn during the initial year.
As long as you don’t take more than 60 percent of the available funds in the first year, you will be charged an upfront MIP of 0.50 percent of the appraised value of the home. If, however, you take more than 60 percent, the upfront MIP will be 2.50 percent.
On a $200,000 home, 2.5 percent is $5,000 versus $1,000 if you were paying 0.50 percent. (Previously, the upfront fees were 2 percent for "Standard" loans and 0.01 percent for "Saver" loans.
The Annual MIP remains at 1.25 percent of the outstanding loan balance.
Single Payment Disbursement Option
Historically, HECM borrowers had to take all of the loan proceeds available to them.
As of September 30, 2013, lenders will begin offering a HECM “mini” option that allows you to take less money at closing. If you are eligible for a $100,000 loan, for example, but don't want that much money, you can choose a single disbursement equal to 60 percent or less of that sum.
Unfortunately, if you wanted more money at a later time, you would not be able to access any additional funds. However, this is a great option for someone who wants to preserve the equity in his home by utilizing a smaller amount of funds.
While the typical retiree uses a HECM to eliminate debts, pay for healthcare and/or cover daily living expenses, a growing segment of the senior population is using it to purchase a home that better suits their needs.
The advantage of using HECM for Purchase is that the new home is purchased outright, using funds from the sale of the old home, private savings, gift money and other sources of income, which are then combined with the reverse mortgage proceeds. This home buying process leaves you with no monthly mortgage payments.
While study after study reveals that an overwhelming percentage of seniors want to continue living in their current home for as long as possible, for some people that isn’t the best, or safest, option. HECM for Purchase offers a solution to downsize into a place that’s more easily navigable, possibly more energy efficient, with lower maintenance costs, or which is closer to friends and family.