You may have heard of a reverse mortgage before, but are you familiar with how reverse mortgages have evolved over the years and how they could benefit you now more than ever? From their introduction to today, there have been significant changes and improvements that have previously hurt homeowners, especially those owning or considering taking out a reverse mortgage loan to cover financial needs later on in life. In this blog post let us take a look at some of these changes and how they can affect senior homeowners today.
Reverse mortgages have become an increasingly popular option for older adults looking to tap into the equity of their homes without having to sell, move out or without having to get a new loan with payment to access those funds. Essentially, a reverse mortgage allows homeowners to receive payments from the money they already paid into their home (equity), either as a lump sum or in monthly installments, while retaining ownership and living in the home. While reverse mortgages can be a great option for those who are looking to supplement their retirement income or pay for unexpected expenses, it’s important to note that they are not a silver bullet solution and should be carefully considered in light of your overall financial goals and needs. As always, it’s a good idea to consult with a financial advisor in addition to the now required HUD governed housing counseling session before making any major financial decisions.
The first reverse mortgage is written in Portland, Maine. This new type of loan was created by a savings and loan officer to help his high school football coach’s widow to be able to stay in her home after her husband passed away.
The Century Plan is introduced, which is the first mortgage that keeps the loan in place until a borrower permanently leaves the residence by moving or passing away.
Congress passes an FHA insurance bill called the Home Equity Conversion Mortgage Demonstration, which is a reverse mortgage pilot program that insures reverse mortgages.
HUD gains the authority to insure reverse mortgages through the FHA when President Ronald Reagan signs the reverse mortgage bill into law. The reverse mortgage government insured loan is established.
The first FHA-insured Home Equity Conversion Mortgage (HECM) is issued.
Congress begins requiring lenders to disclose to borrowers the total annual loan costs at the start of the application process. This allows borrowers the chance to compare lender prices and shop around.
The reverse mortgage program is adjusted to allow for loans on residences that have up to four units as long as the borrower occupies one unit as their primary residence. This effectively gave the HECM a rental investment component.
The HECM is officially permanent! The HUD Appropriations Act makes the program official while Congress allots funds for counseling, outreach, and consumer education. Safeguards (like full disclosure of fees) are implemented to protect borrowers from unnecessary charges.
HUD and the American Association of Retired Persons (AARP) team up to begin testing and training approved counselors.
AARP conducts its first national survey of reverse mortgage borrowers which reveal that the primary motivation for getting a reverse mortgage for borrowers is to plan for emergencies and to improve the quality of life.
The HECM for Purchase is introduced. For the first time in reverse mortgage history, borrowers are allowed to purchase a new home without paying monthly mortgage payments.
HUD releases new HECM policies that make the product safer, stronger, and less risky for the borrower.
Non-borrowing spouse protections went into effect. This means that if the qualifying buyer passes away the non-borrowing spouse can remain in the house payment free until they are 100 years old.
HUD raises the HECM lending limit to $1,089,300.
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