In the late ’80s, the FHA insured the first HUD reverse mortgage, known as the Home Equity Conversion Mortgage, which remained essentially unchanged for more than 20 years. Last October, however, HUD introduced a new wrinkle for seniors interested in saving money on a reverse mortgage: the HECM Saver.
While the traditional HECM program has an initial Mortgage Insurance Premium of 2 percent of the loan amount, the HECM Saver – available to homeowners 62 and older – includes an MIP of only .01 percent. This up-front fee difference is considerable, especially as the loan amount goes up. However, the amount you can borrow with the HECM Saver is between 10 and 23 percent less, depending on your age.
A good candidate for the HECM Saver is a senior on a fixed income or budget who has long-term needs beyond the need for short-term cash.
The program is ideal for folks with conventional mortgages who would like to eliminate monthly payments without tapping too much of their home's equity. “The HECM Saver is ideal for their situation because there are enough proceeds [to do so],” says Beth Paterson of Reverse Mortgages SIDAC, St. Paul, Minn.
“The HECM Saver is a breakthrough product that will enable more seniors to access the advantages reverse mortgages can provide,” says Eric Declercq, national sales lead for reverse mortgages at MetLife Bank, Bloomfield, New Jersey. “It increasingly will become an important financial planning tool for America’s senior population looking to use the equity built up in their homes to finance a comfortable retirement.”