Reverse mortgages are utilized by many seniors in the U.S., but the loans don’t have the best track record of protecting those who make use of them. It is for that reason that the Federal Housing Administration has decided to mend the program and provide additional protections for borrowers.
What Is a Reverse Mortgage?
A reverse mortgage is a loan which allows individuals over the age of 62 to borrow equity from their home to get cash up front. Though reverse mortgages do come with restrictions on how money can be spent, they can be a good way for retirees to supplement what is often a limited income. As long as the borrower still owns the home, he does not have to pay anything back. Instead, the lender makes monthly payments from the home’s equity to the homeowner — hence the name reverse mortgage. However, in the event that the borrower stops residing in the home, sells the property, or fails to remain current on taxes, the loan must be repaid.
The Proposed Changes
The goal of the modifications proposed by the FHA is to ensure that the method of borrowing is a viable means for retirees to remain in their homes. Over the past two years, the FHA has made other adjustments to the program to satisfy its end goal as well. The most prominent change was introducing the initial financial assessment requirement, which serves to determine whether the borrower will be able to meet tax payments and other home fees. This latest round of changes also includes: requiring HECM counseling before the contract is signed, capping interest rates at five percentage for the life of the loan and incorporating utilities into property charges. Additionally, lenders will now be required to fully disclose all details of the loan and provide a “cash for keys” program as an alternative to foreclosure.
If you’re interested in learning more about your rights with a reverse mortgage, give us a call. A Miami foreclosure attorney at Graham Legal can help to answer all of your most pressing questions.