New Rules for Reverse Mortgages

The government is changing the loan’s insurance costs and reducing how much applicants can borrow—and the window for borrowing under the old rules is closing fast.

In a surprise move, the government is changing the reverse mortgage rules again. And the changes, which affect the cost of insurance and borrowing limits, are a mixed bag for borrowers.

Upfront mortgage insurance premiums will be a flat 2% for every loan, a change that means some applicants will pay more, while others will save. If you qualify to take up to 60% of the eligible loan amount in the first year with the remainder available the following year, your upfront cost will rise one and a half percentage points from the previous 0.5%. For those who qualify to take more than 60% in the first year, generally because of an outstanding mortgage that must be paid off, the upfront cost drops by half a point, from 2.5%.

Ongoing insurance costs will drop for all borrowers, with the annual premium falling from 1.25% to 0.5%. “Over time, that could have a significant impact,” says Peter Bell, president of the National Reverse Mortgage Lenders Association. For every $100,000 in loan balance, you’ll save $750 a year. The lower ongoing cost may offset much or all of the higher upfront cost.

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