Standard Fixed Rate Option for San Diego Reverse Mortgages Eliminated

San Diego Reverse Mortgage
San Diego Reverse Mortgage

HUD (Housing and Urban Development) recently announced several changes that not only affected FHA loans, but also San Diego Reverse Mortgages. In an effort to strengthen FHA and the reverse mortgage program, HUD has decided to eliminate the Standard Fixed Rate Option for their HECM (Home Equity Conversion Mortgage) program starting April 1st, 2013.

The standard fixed rate HECM has been the most popular option over the last several years for seniors looking to get a San Diego Reverse Mortgage. Now the only fixed rate reverse mortgage option seniors will have is the Saver Fixed Rate HECM.

The Saver Fixed Rate features a lower initial Mortgage Insurance Premium (MIP) of .01% of the loan amount instead of the 2.0% MIP the Standard Fixed rate required. Thus, the closing costs are much cheaper for this option. The drawback comes from the fact that the program was designed for those who wanted to borrow a smaller amount of equity than what was available with the Standard Fixed Rate.

For example, if a pair of 74 year old homeowners use the Standard Fixed Rate, they can access 68.9% of their home equity. If the same homeowners use the Saver Fixed Rate reverse mortgage they can only draw out 52.9%. Since the initial loan balance is significantly smaller, using the Saver Fixed Rate HECM can leave more equity in your home, but may leave some homeowners short on what they need in order to pay off their current loan.

If you would still like to get a Standard Fixed Rate Reverse Mortgage, you have some time. We need to have the FHA case number assigned before April 1st, 2013. In order to get your case number, you do have to go through the required 3rd party counseling session and have your counseling certificate. That means you would need to get your counseling scheduled in the next 2 weeks. All Standard Fixed Reverse Mortgages must close by July 1st, 2013.

HUD’s Press Release states:

As discussed in its Annual Report to Congress, FHA will consolidate its Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) and Saver Fixed Rate HECM pricing options. This change will be effective for FHA case numbers assigned on or after April 1, 2013. The Fixed Rate Standard HECM pricing option currently represents a large majority of the loans insured through FHA’s HECM program and is responsible for placing significant stress on the MMI Fund. To help sustain the program as a viable financial resource for aging homeowners, the HECM Fixed Rate Saver will be the only pricing option available to borrowers who seek a fixed interest rate mortgage. Using the HECM Fixed Rate Saver for fixed rate mortgages will significantly lower the borrower’s upfront closing costs while permitting a smaller pay out than the HECM Fixed Rate Standard product, thereby reducing risks to the Mutual Mortgage Insurance Fund. Read FHA’s new HECM Mortgagee Letter.

The Adjustable Rate Reverse Mortgage will still be available and will continue to allow a higher draw amount like the Standard Fixed does. The Adjustable Rate Reverse Mortgage allows the funds to be paid out by tenure payment or available in a line of credit.

If you would like more information about the different San Diego Reverse Mortgage options available, please give me a call. I am a San Diego Mortgage Broker with over 10 years experience working with Seniors and offering reverse mortgages. I would love to help you get a San Diego Reverse Mortgage to meet your needs.

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