There are three products offered by the Reverse Mortgage Program. Every consumer needs to look carefully at these products because each product has its own distinct advantages and disadvantages. The three products offered are the HECM Saver Fixed, HECM Saver Adjustable and HECM Standard Adjustable, HECM stands for Home Equity Conversion Mortgage. HUD eliminated the HECM Standard Fixed in April of 2013.
HECM Saver Fixed
This particular product offers the least amount of closing costs, but also has the least amount of flexibility compared with the other options. The only available option with this product is the lump sum payout, but the rate is fixed for the life of the loan. The HECM Saver Fixed offers an Upfront Mortgage Insurance Premium (UFMIP) of just .01%, which is a charge that the FHA sets and is not charged by the lender. For example, if the maximum claim amount is $200,000, then the UFMIP is only $20, which is a nice savings compared with the HECM Standard product. Although the savings is greater with the closing costs, the trade off is less equity is available to you.
If you are 70 years old and the value of your home is $200,000 then the amount available to you as a lump is roughly $104,000 and you have no flexibility to take out more in the future. But if you need this amount or less then this product may be perfect for you, especially if you are using the proceeds of the reverse mortgage to pay of an existing mortgage on the home.
HECM Saver Adjustable
This product offers the same savings as the HECM Saver Fixed with the UFMIP being just .01%, but this comes with an adjustable interest rate for the life of the loan. The interest rate is based on the 1 month LIBOR, which means it can adjust every month. The reason why you would want to take out a HECM Saver Adjustable is it offers greater flexibility with the payouts. You can take out a lump sum, line of credit or a monthly payout for the remainder of the time you live in the property.
The line of credit and the monthly payout options are the main reasons that the HECM Saver Adjustable would be taken out. The line of credit option lets you draw money as you need it and the best part is the line of credit grows as the value of your home grows. So you will have more credit available to you over time. The monthly payout option may be the best option because it is guaranteed for the time you live in the property. Even if you owe more than the property is worth, the lender is still required to pay you monthly until you move from the home or pass away.
Of course the downside is that with the HECM Saver product, less money is available to you as a line of credit or in the form of a monthly payout. If you need more money available then there is one more option available.
HECM Standard Adjustable
This product offers the most amount of money, either upfront or over time, but the closing costs are a bit more than the HECM Saver products. The HECM Standard Adjustable UFMIP is 2% of the maximum claim amount, meaning that if the value of your home is $200,000, then the UFMIP would be $4,000. This cost can be rolled into your loan and is not required to be paid out of pocket. The trade off with the the higher closing costs is that this product offers the most flexibility of any other product in the HECM family.
Example of HECM Standard Adjustable Scenario:
This will give you the most access to your equity, whether you are looking to take out a lump sum payout, line of credit or guaranteed monthly payout option. Once again this is an adjustable interest loan, meaning it follows the 1 Month LIBOR and can adjust once a month.
This product is typically the most popular one because it offers the most flexibility in payout options, but also offers the most amount of access to your equity.
Once again, if you choose the line of credit option, then your credit line grows as the value of your home grows, which will give you access to more equity over time.
You will need to carefully review these three product options when considering a reverse mortgage. Because you may need more or less access to your equity upfront or even over time.
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Three Products Offered by the Reverse Mortgage Program
![Three Products Offered by the Reverse Mortgage Program]()
Reviewed by Merlyn Rosell
Published :
Rating : 4.5
Published :
Rating : 4.5