Buried in the new housing bill (The Housing and Economic Recovery Act) is some very good news for seniors whose main asset is the family home.
The new law makes it easier and less expensive for seniors to access the cash value of their homes on a tax-free basis through a reverse mortgage, and expands the amount that can be borrowed.
Reverse mortgages had nothing to do with the mortgage mess -- they are a safe and easy way for homeowners age 62 and older to maintain control and ownership, while tapping their home equity for tax-free cash.
Now there will be a higher borrowing level on FHA reverse mortgages -- with $625,000 of home value as a cap, and a $417,000 borrowing limit. Fees will be capped at 2% of the first $200,000 borrowed, and 1% on the balance -- with an absolute maximum of $6,000 in fees.These rules apply to FHA mortgages, which insure the lender against the possibility that the homeowners will stick around far longer than anticipated! Other lenders provide "jumbo" reverse mortgages for higher amounts, taking larger fees to offset their risk. But there is no risk to the homeowner, who gets the money -- and the house -- for as long as the owner chooses to live there. How a Reverse Mortgage Works A reverse mortgage may be the perfect answer for seniors who want to stay in their homes, but have a cash flow problem. They can get a monthly stream of tax-free income, or a lump sum, and it's tax-free. Their ability to access the equity in their home does not depend on their ability to repay, as in the case of a home equity loan.