The Mortgage Professor: Reverse mortgage program gets a makeover
The bad news is that the HECM program is now even more complicated than it was. While it is not clear whether or not the new rules will succeed in discouraging early cash draws, it is very clear that these rules have made it more difficult for seniors to sort out their cash draw and options for mortgage insurance, or MI. Here are some illustrations:
—If mandatory draws are 10 percent of the principal limit, pocket draws can be up to 50 percent. MI is 0.5 percent.
—If mandatory draws are 50 percent of the principal limit, pocket draws can be up to 10 percent. MI is 0.5 percent.
—If mandatory draws are 55 percent of the principal limit, pocket draws can be up to 5 percent with MI of 0.5 percent, or up to 10 percent with 2.5 percent MI. The borrower has a choice.
—If mandatory draws are 61 percent of the principal limit, pocket draws can be up to 10 percent. MI is 2.5 percent.
If this makes your head spin, never mind. I had to master it in order to reprogram the HECM calculator on my website, but you don’t, and neither do seniors contemplating a HECM. What should matter to them is what their unique options are, and they can find that on my website, www.mtgprofessor.com.
ABOUT THE WRITER
Jack Guttentag is professor emeritus of finance at the Wharton School of the University of Pennsylvania. Comments and questions can be left at http://www.mtgprofessor.com.
©2013 Jack Guttentag
Distributed by MCT Information Services
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