HECM Saver Reverse Mortgage

The HECM Saver reverse mortgage was introduced by HUD and FHA in the fall of 2010 as the answer to the never ending complaint about the high cost of obtaining a reverse mortgage loan. Although the cost argument doesn’t usually hold up under close scrutiny, HUD addressed the issue by launching the new HECM Saver reverse mortgage. While the new HECM does have lower costs it also offers smaller loan amounts to eligible borrowers. Consequently, the HECM Saver reverse mortgage may or may not be the most beneficial choice, depending on your individual needs.
hecm saver reverse mortgage

HECM Saver Reverse Mortgage Insurance Premium

The initial insurance premium for the HECM Saver reverse mortgage has been reduced to almost zero. The premium is 0.01% of the appraised value or the FHA lending limit, whichever is less. For example if the home value is $250,000. The upfront insurance premium for the HECM Saver reverse mortgage will be $25.00.

The traditional HECM, which is now called the HECM Standard has an upfront premium of 2% of the appraised value or the FHA lending limit, whichever is less. In this example, the same home valued at $250,000 will have an upfront premium of $5,000. compared to only $25.00 for the HECM Saver reverse mortgage. Obviously a huge difference.

HECM Saver Reverse Mortgage Loan Amounts

The HECM Saver reverse mortgage borrower will receive 10% to 20%
less in loan amount than they will with the HECM Standard. Using the AARP reverse mortgage calculator, a 72 year old that owns a home valued at $350,000 will be eligible for a lump sum fixed rate HECM Saver Reverse Mortgage of about $180,000 versus the HECM Standard fixed rate lump sum of $228,000 – a difference of $48,000. If you are paying off an existing mortgage balance with your reverse mortgage loan proceeds, you may not have a choice of which HECM loan to choose. However, if you do not need the full loan amount from the HECM Standard, you could save quite a bit of money by opting for the HECM Saver reverse mortgage.

A Cautionary Note About Focusing Only On Cost

As mentioned earlier, the biggest objection to FHA insured HECM loans is that reverse mortgages cost too much. Critics of the HECM reverse mortgage inevitably bring up the cost argument whenever they try to justify their point of view. However, the majority of the time, the detractors conveniently omit the fact that most alternative options will actually cost homeowners more than a reverse mortgage loan will.

For example, selling your home and moving to a smaller home or apartment, may very well end up costing more by the time you factor in the real estate sales commission, seller closing costs, possible home repairs to get the house ready to market, and the cost of the move itself, (deposits, utility hook-ups, moving van and labor, final clean up of your sold home, etc.)

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