December 22, 2008
Huge Impact – New Reverse Mortgage Lending Limit Increase
George Bush signed the Housing and Economic Recovery Act on July 30. It officially went into effect on October 1st. For seniors 62 and over the law officially raised the national reverse mortgage lending limit to four-hundred-seventeen thousand dollars.
Before the new law took effect, most parts of the country had a maximum reverse mortgage lending limit of $200,160. On November 6, mortgage companies started the funding and closing of loans with the higher limits.
Those helped most by the new law are those with homes valued over the former lending limits. Banks will loan these homeowners up to twice the amount as before the law’s enactment. Even better, lender fees are reduced as a percentage of the home.
Wilma Johnson has ownwership in a commercial flooring company. Prior to the beginning of 2008 business was thriving. “The phone was ringing and we kept answering it”. In the beginning of 2008, the phone stopped ringing as the commercial market died off. Now, one year later, at age 64, Mrs. Johnson is having trouble managing to pay her bills on time. It’s not uncommon to dip into savings from time to time. Her $230,000 mortgage on her home takes up to $1,400 per month of her income.
With many unknowns in the commercial marketplace, she is unsure when her income will return. With that in mind Mrs. Johnson exercised the option to completely eliminate the burden of her mortgage payment by refinancing her home with a reverse mortgage.
One of the common misconceptions regarding senior homeowners getting a reverse mortgage is that these borrowers all must own their home with out liens or a mortgage against the home.
The facts paint a different picture. Even before the new law came into effect most reverse mortgage customers were getting reverse mortgages to pay off an existing mortgage. In effect the reduction in mortgage payment is a net increase in income.
The newly enacted law has come not a moment too soon for many seniors with mortgages formerly untouchable by the old limits. With the new limits in place many cash strapped borrowers are free to pay off old mortgages with a new reverse mortgage to eliminate the monthly financial burden.
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