What was the Reverse Mortgage Savings Program?
The Reverse Mortgage Savings Program was an initiative introduced in 2010 by the US Department of Housing and Urban Development (HUD) to offer an alternative to the standard mortgage conversion mortgage (HECM), which is a reverse mortgage backed by the federal government. The Reverse Mortgage Savings Program, called “HECM Saver”, was introduced to help reduce borrowing costs for homeowners who wanted to borrow smaller amounts than allowed for a regular HECM, which was recently classified as “HECM”. .
- Reverse mortgages allow homeowners to borrow against their own funds without having to make monthly loan payments to a lender.
- Reverse mortgages backed by the federal government are called equity conversion mortgages (HECMs).
- The reverse mortgage savings program, also known as the “HECM Saver”, was introduced by the US Department of Housing and Urban Development in 2010 as an alternative to the regular HECM program, which was later classified as the “HECM Standard”.
- Key features of the HECM Saver program included reduced mortgage premiums, reduced closing costs and lower lending limits.
- HECM Saver was abolished in 2013, taking with it the name HECM Standard.
Understanding the Reverse Mortgage Saver program
A reverse mortgage is a type of financial agreement in which a homeowner borrows against his own funds without taking out a traditional home equity loan or home equity credit line (HELOC). A reverse mortgage company provides the homeowner with either a one-time payment, a series of installment payments or a credit line. Interest and fees are derived from the amount received.
If the homeowner uses the home as his or her home, he or she will not pay anything to the reverse mortgage company. If the homeowner sells the property, moves or dies, the reverse balance of the mortgage is due, including the borrowed capital, interest and commissions.
HECMs have many relative costs, such as:
When HECM Saver was introduced, a HECM Standard had a preliminary MIP of 2% and an annual MIP of 1.25%. HECM Saver reduced the original MIP to 0.01%, but kept the annual MIP the same.
The ceiling for HECM origin taxes
The purpose of HECM Saver was to create HECM for borrowers who wanted to withdraw smaller amounts of equity from their homes. Borrowers who wanted to raise larger amounts of equity still had the option of using the HECM Standard, paying higher MIPs in return.
HECM Saver was abolished in 2013, taking with it the name HECM Standard. This was part of an effort to streamline and strengthen the HECM program to make it easier for homeowners to borrow against their own funds.
In its current form, the HECM program secures reverse mortgages for borrowers who meet all of these conditions:
- He is 62 years old and older
- They fully own their homes or have repaid most of their mortgage
- They are not overdue for any federal debts, including taxes or student loans
- You have the financial resources and income to pay for homeowners insurance, property taxes, homeowners association fees, maintenance and upkeep
- Live in a suitable property that is used as the main residence
For the purposes of the HUD and the Federal Housing Administration (FHA), eligible properties include detached and two-, three-, and four-unit homes if the borrower resides in one of the units. Homeowners living in mansions, condominiums and caravans may also be able to obtain approval if the home meets FHA requirements.
Homeowners are required to attend HUD-approved counseling. They are also required to pay the various costs associated with HECMs, including MIPs. As of April 2022, HECMs have a preliminary MIP of 2% and an annual MIP of 0.5% of the mortgage balance.
The interest rate you pay on an HECM can determine how much equity you can withdraw from your home.
What is HECM?
HECM means home equity conversion mortgage. It is a type of reverse mortgage that is secured and supported by the federal government. HECMs are designed for savers who are 62 years of age or older who own the entire home or have repaid most of their mortgage balance. An HECM allows eligible homeowners to convert their home equity into an income stream.
What is HECM Saver?
The HECM Saver, also referred to as the “Reverse Mortgage Savings Program”, was introduced by the US Department of Housing and Urban Development in 2010 to provide an alternative product to regular HECMs. Borrowers who have received a reverse mortgage through HECM Saver have been able to benefit from reduced mortgage premiums or MIPs. The program was discontinued in 2013.
What is the difference between a HECM and a reverse mortgage?
HECMs are a type of reverse mortgage. They differ from other reverse mortgages because they are backed and insured by the Federal Housing Administration and issued by an FHA-approved lender. All HECMs are reverse mortgages, but not all reverse mortgages are HECMs.
What are the disadvantages of an HECM?
There are a number of disadvantages associated with HECMs, including the annual and preliminary MIPs required and the interest that may accrue over the life of the loan. Another major drawback is the way the HECMs are repaid. Once the homeowner stops using the home as their primary residence, the balance of HECM is paid in full and their heirs may be forced to sell the property to pay for HECM.