Late last year the FHA rolled out the HECM Saver Reverse Mortgage loan for consumers seeking lower loan closing costs and an alternative to a Home Equity Line of Credit (HELOC). The program is designed for those who would like to borrow a smaller amount than what is currently available with the HECM Standard. The HECM Saver provides two opportunities to save up-front and after obtaining a Reverse Mortgage loan. There are lower closing costs ascribed to the HECM Saver and it features a lower initial Mortgage Insurance Premium (MIP) of .01% of the loan amount, where the HECM Standard requires a 2.0% MIP. There is also preservation of equity. The amount of equity you can access with the HECM Saver is less than with the HECM Standard, leaving the homeowner with more equity in their home.
Comparing HECM Saver Reverse Mortgage to HELOC
HECM Saver Reverse Mortgage Options:
- Low up-front closing costs
- No monthly loan payment
- Repayment when the home is no longer your primary residence, provided you meet other loan obligations such as payment of taxes and insurance
HELOC Options:
- Interest rates are usually higher than a first mortgage loan
- Requires monthly loan payments
- Credit score verification required
- Income verification required
- Generally requires you maintain a certain level of equity in your home or the HELOC may be closed
- May be more difficult to obtain due to the recent tightening of the financial market, including discontinued or significantly revised HELOC programs
With the HECM Saver Reverse Mortgage homeowners now have another alternative to the HELOC.
The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.