FHA has made a few changes recently to the HECM reverse mortgage program. The first change to note is in the Initial Mortgage Insurance Premium (IMIP) and the Annual or Ongoing Premium. The IMIP is now 2% of the home value up to the maximum claim amount of $726,525 for all borrowers. Previously, cash draws under 60% of the principal limit carried an initial mortgage insurance premium of .5%. This results in a savings for borrowers who have high draws and a cost increase for those with draws or lien payoffs below 60%. The ongoing or annual mortgage insurance premium as dropped from 1.25% to .5% on the loan balance. Of course, this is a great improvement for borrower’s who carry high mortgage balances and results in a full accrual rate that is competitive with conventional and other FHA loans.
Another important change is, HUD lowered the 5.06% floor to 3%. The reason this is important is that lower margins and rates result in larger principal limits or funds to the borrower. So now it’s more important than ever to get multiple quotes as the margin not only reduces the interest rate charged over the life of the loan but also directly impacts the amount you receive. And finally, a very important modification is that HUD has also reduced the Principal Limit Factors or percentage of of the value of the home that homeowner’s will receive. To learn how this affects you, please request a quote and feel free to call to discuss how it impacts you as every borrower situation is unique.