Home Equity Mortgage Conversion Saver loans, or HEMC Saver loans are a type of reverse mortgage that's advantages are based in structural differences as compared to standard reverse mortgage loans. The primary differences between standard HEMC loans and the HEMC Saver program are the mortgage insurance premium cost structure and the size of the loan. These adjustments to the Home Equity Mortgage Conversion program operated by the government allow for the following possible advantages.
Mortgage Insurance Premium (MIP)
A major advantage of the HEMC Saver is the Mortgage Insurance Premium which is initially 1.9 percent lower than standard HEMC loans which have a MIP of two percent. The reduction in mortgage insurance premium can reduce the up front cost of this reverse mortgage by more than 25 percent over the standard HEMC loan program. However, it is important to note that the remaining 1.9 percent MIP is not eliminated, but rather spread out on an annual basis.
Improved loan availability
Since HEMC Saver loans are estimated to be 10-18 percent smaller than standard HEMC loans by the Department of Housing and Urban Development, it follows more applicants have a chance of being approved for reverse mortgages with this program in effect. In other words, for those homeowners with home equity and existing mortgage amounts that disqualify them from standard HEMC loans, the possibility of qualifying for a reverse mortgage under the HEMC Saver loan program may still be possible.
Easier to refinance
With the availability of Home Equity Mortgage Conversion Saver loans, the possibility of refinancing standard HEMC loans is also possible at a more affordable upfront cost. This may be advantageous for those homeowners seeking to get more out of their equity via lower cost. For example, if a Standard $200,000 HEMC loan is offered at a rate of 5.5 percent and the homeowner wants to refinance at 4.5 percent, if the full MPI has already been paid on the standard HEMC, then no MPI will be due on the HEMC Saver if the reverse mortgage refinance to an HEMC Saver is approved.
Cash flow budgeting
Another advantage of the Home Equity Mortgage Conversion Saver loan is its flexibility. Since this type of loan has different repayment requirements to traditional mortgages, a smaller loan with lower upfront costs may be an advantage to those borrowers seeking a tax free alternative to a Home Equity Line of Credit (HELOC). In other words, the U.S. Internal Revenue Service may not charge tax on the money received from an HEMC Saver loan. According to a report by the American Association of Retired Persons, the lower cost of HEMC Saver loans combined with a spread out payment structure can make the loan useful for renovations, and for borrowers who do not intend on living in the home for a long time
Mortgage Insurance Premium (MIP)
A major advantage of the HEMC Saver is the Mortgage Insurance Premium which is initially 1.9 percent lower than standard HEMC loans which have a MIP of two percent. The reduction in mortgage insurance premium can reduce the up front cost of this reverse mortgage by more than 25 percent over the standard HEMC loan program. However, it is important to note that the remaining 1.9 percent MIP is not eliminated, but rather spread out on an annual basis.
Improved loan availability
Since HEMC Saver loans are estimated to be 10-18 percent smaller than standard HEMC loans by the Department of Housing and Urban Development, it follows more applicants have a chance of being approved for reverse mortgages with this program in effect. In other words, for those homeowners with home equity and existing mortgage amounts that disqualify them from standard HEMC loans, the possibility of qualifying for a reverse mortgage under the HEMC Saver loan program may still be possible.
Easier to refinance
With the availability of Home Equity Mortgage Conversion Saver loans, the possibility of refinancing standard HEMC loans is also possible at a more affordable upfront cost. This may be advantageous for those homeowners seeking to get more out of their equity via lower cost. For example, if a Standard $200,000 HEMC loan is offered at a rate of 5.5 percent and the homeowner wants to refinance at 4.5 percent, if the full MPI has already been paid on the standard HEMC, then no MPI will be due on the HEMC Saver if the reverse mortgage refinance to an HEMC Saver is approved.
Cash flow budgeting
Another advantage of the Home Equity Mortgage Conversion Saver loan is its flexibility. Since this type of loan has different repayment requirements to traditional mortgages, a smaller loan with lower upfront costs may be an advantage to those borrowers seeking a tax free alternative to a Home Equity Line of Credit (HELOC). In other words, the U.S. Internal Revenue Service may not charge tax on the money received from an HEMC Saver loan. According to a report by the American Association of Retired Persons, the lower cost of HEMC Saver loans combined with a spread out payment structure can make the loan useful for renovations, and for borrowers who do not intend on living in the home for a long time
Sources:
1. http://bit.ly/9Rmehx (Department of Housing and Urban Development)
2. http://bit.ly/djQq8y (HUD HECM Announcement letter)
3. http://bit.ly/9R7b0w (IRS: Taxable and Non-Taxable Income)
4. http://bit.ly/1v1dkw (Federal Citizen Information Center)
5. http://aarp.us/984r21 (American Association of Retired Persons)
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