Senior citizens interested in the possibility of obtaining a reverse mortgage for their homes may be very happy about a new law which lowers the fees on reverse mortgages, while raising the amount that homeowners can borrow against.  These new provisions took effect on November 1st and a large increase in applications is anticipated.

Mostly available to people 62 and older, reverse mortgages allow homeowners to convert the equity they have in their home into cash.  Rather than making mortgage payments to the bank each month, the reverse is taking place.  The bank sends money to the homeowner.  There is a choice of a lump sum, a line of credit, or monthly payments.  When the homeowner dies, moves, or sells the home, the loan is due and payable.  If in some cases the sales price is less than the balance, the homeowner is not required to supply the difference. 

Limits in the past have ranged from $200,000 to $362,790, but the new law has increased the limit to $417,000.  The age of the homeowner is a factor in how much can be borrowed.

In the past, an origination fee of 2% was charged.  Under the new law, however, origination fees will be calculated at 2% of the first $200,000 and 1% on the rest up to a cap of $6,000.  There are additional fees involved in obtaining this type of mortgage and costs can run as high as 10% of the home’s value.  If a person is planning to move within a short period of time, a reverse mortgage would not be right for them.  However, if a homeowner is committed to remaining in their home forever, this could be an excellent opportunity for them to live more comfortably.