Next year, older homeowners will be able to convert a greater part of the equity in their homes into tax-free income using a reverse mortgage because of new higher loan limits, a reverse mortgage group said Wednesday.
The increases will affect two reverse mortgage products: the federally insured Home Equity Conversion Mortgage,which accounts for 90 percent of all reverse mortgages made in the U.S., and the Fannie Mae Home Keeper loan, the National Reverse Mortgage Lenders Association said.
The loan limits for the Home Equity Conversion Mortgage, or HECM, product vary by geographic area, the association said. The highest of the loan limits — applicable generally to major metropolitan areas — will grow from $312,896 to $362,790, according to the association.
The lowest loan limit, which generally applies to rural and non-metropolitan areas, will grow from $172,632 to $200,160, and HUD must first issue an FHA Mortgagee Letter before the new loan limits take effect, the group said.
The association expects that a letter from HUD will be issued around the New Year.
Fannie Mae’s national loan limit for single-family mortgages — which includes Home Keeper loans — will rise next year to $417,000 from the current limit of $359,650, the reverse mortgage association said. The Home Keeper loan limit is 50 percent higher for Alaska, Hawaii, and the U.S. Virgin Islands, according to the association.
“These increases in the loan limits for the HECM and Home Keeper products will enable seniors to access greater amounts of equity in their homes, providing a powerful tool for addressing their financial needs through retirement,” said Peter Bell, president of NRMLA, in a statement.
Approximately 79.8 percent of the 3,226 counties (2,575) in the U.S. are currently at the lowest HECM loan limit ($172,632), the NRMLA said.
Only 104 counties, or 3.2 percent of the total, are at the current maximum loan limit ($312,896), according to the reverse mortgage group. The rest of the counties are somewhere in between, according to the NRMLA.
While counties at the “floor” are guaranteed to rise from $172,632 to $200,160, there is no guaranty that counties at the current “ceiling,” or in between the floor and ceiling, will rise immediately, the NRMLA said.
The current lending limits can be seen online at https://entp.hud.gov/idapp/html/hicostlook.cfm.
A reverse mortgage is a unique loan that enables homeowners age 62 and older to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on new monthly mortgage payments.
Borrowers can choose to receive reverse mortgage funds as a lump sum, monthly income, or line of credit, or as a combination of these. Borrowers can use the funds for any purpose, including home repairs and improvements, medical expenses, in-home care, education, and supplemental retirement income.
No mortgage payments are due during the life of the loan. The loan becomes repayable when the borrower sells the home or permanentlymoves out. In addition, the repayment amount can never exceed the value of the home.
NRMLA is a nonprofit trade association, based in Washington, D.C., whose mission is to support the continued evolution of reverse mortgages as an important financial option for senior homeowners.
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