Older homeowners have an advantage. They can eliminate the obligation to make monthly mortgage payments permanently.
In response to the financial upheavals caused by the COVID-19 pandemic, the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act authorized banks to grant qualified borrowers temporary relief from the obligation to make monthly mortgage payments up to six months. This is not debt forgiveness as the unpaid amounts are paid later through modifications to the loan terms. However, this payment pardon helped many borrowers cope with unexpected financial consequences.
Earlier this year, some lenders offered borrowers short-term three-month extensions. Nevertheless, the end is coming this year. Loan terms will be modified, and payment obligations will resume.
Reverse Mortgages Provide Permanent Relief from Mortgage Payments
Older homeowners (62 and older) may be eligible to refinance to a reverse mortgage that defers all payment obligations permanently. No repayment is required until the homeowner sells or no longer resides in the property. Further, additional funds or a line of credit will be made available for any surplus they may be eligible for.
The unique terms of reverse mortgages were developed to meet needs of aging homeowners, who do not want to sell, but wish to remain in their home to age-in-place.
The HUD/FHA insured Home Equity Conversion Mortgage (HECM) reverse mortgage is the dominant program nationally, accounting for over 95 percent of all reverse mortgage programs. HECM property value limits were increased from $765,600 to $822,375 effective, January 1, 2021. And, higher valued properties may be eligible for greater funding by new proprietary (jumbo) reverse mortgage programs.
Massachusetts – Jumbo Reverse Mortgages Now Available
The Massachusetts Division of Banks recently approved new proprietary (jumbo) reverse mortgages for MA home and condominium owners. These programs provide loan amounts up to $1,500,000 with terms substantially similar to the federally insured HECM with low and no cost options, and without the need for FHA project approval.
Massachusetts Condominiums – New Developments
Until recently, reverse mortgage financing was only available to MA condominium projects that were fully approved by FHA. Consequently, only 8 percent of all MA condo projects received approval, leaving 92 percent ineligible. This year, two significant changes occurred expanding and simplifying reverse mortgage financing for MA condo owners.
- FHA Single Unit Approval. This process enables HECM reverse mortgage financing with simplified and limited FHA approval required – eliminates FHA full project approval.
- New proprietary (jumbo) reverse mortgages approved by the MA Division of Banks. Now reverse mortgage loan amounts up to $1,500,000 are enabled without FHA approval.
Reverse Mortgage Benefits
- No monthly payment obligations – prepayments are permitted without penalty but not required. Monthly charges are deferred and accrue.
- Credit line growth – the undrawn balance of the credit line grows (compounding monthly) at the same rate charged on funds borrowed.
- No maturity date – repayment not required until no borrower resides in the property.
- Non-Recourse loan – neither borrowers nor heirs incur personal liability. Repayment of loan balance can never exceed the property value at the time of repayment. If loan balance exceeds property value at time of repayment, the lender, borrower(s), and heirs are not responsible for the deficiency as they are protected by FHA insurance.
- Access to funds and loan terms are guaranteed – cannot be frozen or cancelled as long as borrower obligations are maintained.
Reverse Mortgage Obligations – Limited To:
- Keeping real estate taxes, insurance, and property charges current
- Providing basic home maintenance
- Living in the property as primary residence
While reverse mortgages provide unique and valuable benefits, they are not a suitable solution for everyone.
Get the facts and determine if, or how, the various methods to use housing wealth might work for you now or later. For more information on reverse mortgages, visit the National Reverse Mortgage Lenders Association website www.ReverseMortgage.org, or contact a Certified Reverse Mortgage Professional (CRMP) for a private consultation.
George Downey (NMLS 10239) is the CEO and founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846), Rhode Island (20041821LB), NMLS #2846. Questions and comments are welcome. Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com