40 % Lower Upfront Fees With The Hecm Reverse Mortgage Saver

In fall 2010 FHA, Federal Housing Administration

, which insures all the HECM reverse mortgages launced a new version called Saver. Good name for a financial product, which saves the money of the borrower. The upfront fees have been even 5 % to the value of the home, so they have time to collect the accrued value when the running time is long. Saver will reduce the upfront fees by 40 %.

1. The Mortgage Insurance Is The Only Upfront Fee.

FHA collects the obligatory mortgage insurance from the borrower, which is usually 2 % to the home value. However, they have cut it down to 0,01 % with the HECM mortgage saver. The mortgage insurance is used, if the home value will not cover the capital, accrued interests and all the costs.

The upfront fee of Saver is lower, because the target group can borrow only about 80 or 90 % to what they could with the usual reverse mortgage. For example 75 year old with a home valued at $ 500.000 could get $ 262.000 with Saver but $ 331.500 with a normal HECM reverse mortgage. Saver is a lower risk product to FHA because the lending limit is lower.

2. Saver Makes It Possible To Use HECM Reverse Mortgage More Flexibly.

If a senior must pay a high upfront fee, it will take longer to see the reverse loan benefits, i.e. before the benefits are bigger than the costs. Saver does not have this problem.

3. Saver Has A Fixed Effective Interest Rate.

Savers effective rate of 4.01 % includes 2.76 variable rate plus an annual fee of 1.25 %. The home equity line of credit usually has higher rate. Compared to the home equity loan the closing costs are higher. But there is no monthly payments and this makes it safer for some borrowers, who are afraid of the extra monthly payments, which they cannot meet.

4. Some Downsides of Saver.

The loan amount is smaller compared to the traditional reverse loan. Some lenders use higher interest rates for Saver to cover the low initial demand of the new loan. So what is the bottom line? It depends on the length of the running time and the size of the variable interest rate. However, the only smart way is to talk with a reverse mortgage counselor about this new loan. He has all the expertise to guide a senior.

5. When Saver Is Wise To Take?

Well, very clearly if the borrower can get Saver with a smaller upfront fee and smaller interest rate. And when he is happy with the smaller loan amount. Even in this case it is useful to negotiate with the counselor, because both the traditional mortgage and Saver include so many details.

by: Juhani Tontti

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