The Trump administration on Monday putting new restrictions on reverse mortgages – loans taken out by senior citizens against the value of their homes.
The changes causing many elderly U.S. residents to scramble to apply for the loans before Monday’s stricter guidelines either shut them out or shrink the amount they can borrow by about ten percent.
“The changes that go into effect Monday mean that seniors will have to pay higher upfront premiums and they won’t be able to borrow as much money. Many of the people I’ve spoken with say these changes are terrifying and they caught them by surprise. They’ve been saving up to make this loan for a while now and many of them, because of these changes will no longer be able to afford the upfront costs.”
Reverse mortgages are a popular but risky lifeline – allowing homeowners 62 or older to borrow against the value of their home, with no need to repay the loan until the borrower sells the home or dies. The line of credit often used to pay bills, manage medical costs and supplement retirement income.
They have also been blamed for a rise in foreclosures among seniors. The uncertainty of home sale prices and rising interest rates among the factors that have put the program under strain.
Upfront premiums are rising to 2 percent of a home’s value from half a percent.
While many will feel short-term pain, some – like the conservative American Seniors Association – see the change as positive, ultimately lowering annual mortgage premiums and preserving equity for seniors in their remaining twilight years.
Reuters Correspondent Melissa Fares.