|
The current housing crisis brought on the passage of the Housing and
Economic Recovery Act of 2008. In addition to trying to assist with the mortgage forclosure crisis, the law makes changes to reverse mortgages,
including higher borrowing limits and protections from what boils down to unscrupulous and over-aggressive
marketing. What is a reverse mortgage? A reverse mortgage is a mortgage that allows a homeowner who is at least 62 years
old to use home equity to obtain a loan that does not
have to be repaid during the homowner's lifetime. If the homeowner moves, sells, or dies the loan must be repaid under the terms of the mortgage. When does the new law go into effect and what does it do? The new
law, which goes into affect October 1, 2008, increases the borrowing
level on reverse mortgages. The national limit on the amount a
homeowner can borrow will be $417,000, up from about $200,000. The limit can be increased to
$625,000 in areas with high housing costs like New York and California (most likely NOT in the Cleveland metropolitan area). The amount a homeowner can
actually borrow depends on the home's value, location, interest rates,
and the age of the borrower. The new law also offers some protections for seniors. High fees and aggressive marketing have been cited as problems with reverse mortgages. Under the new law,
fees will be capped. The fees that can be charged will be no more than 2 percent of the first $200,000 borrowed and 1
percent on the balance, with a maximum of $6,000 in fees. In addition,
the law prevents lenders from requiring borrowers to purchase
insurance, annuities, or other products as a condition for getting a
reverse mortgage. Lenders are also prohibited from working with other
professionals who are trying to sell seniors financial products as part
of the lending process. If you would like a copy of the Housing and Economic Recovery Act of 2008, feel free to email me. For a U.S. News and World Report article on the reverse mortgage provisions in the new housing law, click here.
|
