This week, USA.gov published an updated guide for consumers from the Consumer Financial Protection Bureau (CFPB), reflecting recent program changes as two key details to consider when thinking of reverse mortgages.
The post, titled “Updated Reverse Mortgage Guide: Two Things You Should Know,” briefly discusses the basics of reverse mortgages such as certain eligibility requirements and considerations, while also expanding on first-year payout limits and protections for non-borrowing spouses.
Referring to the 60% draw limit in the first year following loan closing, the guide mentions problems borrowers faced in outliving their proceeds under previous lump-sum withdrawal circumstances.
“It may feel great to get a big payment up front, but borrowers can outlive this money—which spells financial trouble for borrowers who live longer lives,” writes Nora Down Eisenhower from the CFPB.
While borrowers can still opt for the lump-sum feature, the guide suggests this is still a “risky choice,” urging consumers to strongly consider other options such as the monthly payment or line of credit features before making a final decision.
Another important feature covered in the guide discusses the protections for non-borrowing spouses earlier this year, as detailed in Mortgagee Letter 2014-07.
“For couples considering a reverse mortgage, borrowing together makes more sense,” writes Eisenhower. “If both spouses sign the reverse mortgage, then the surviving spouse can continue to receive monthly payments or use an existing line of credit. It also ensures that a surviving spouse may live in the home after his or her spouse (co-borrower) dies.”
View the updated guide on USA.gov.
Written by Jason Oliva