Consider a Reverse Mortgage to Cut Taxes in Retirement

Newly Increased HECM Lending Limit to Take Effect in January

Many seniors will soon have significantly more cash available through a HECM reverse mortgage. As of January 1, 2019, the HECM lending limit will be increased by FHA to $726,525 from the current limit of $679,650.

FHA periodically updates the lending limit to reflect prevailing home values across the nation.

Home values have increased substantially since the financial crisis of 2008. FHA has responded by steadily increasing the lending limits for both traditional FHA mortgages and HECM reverse mortgages.

How the Lending Limit Impacts Proceeds

The HECM lending limit caps the initial amount for which a senior can qualify. Based on age, current rates, and the program selected (variable-rate HECM or fixed-rate HECM), a borrower qualifies for a certain percentage of the maximum claim amount, or MCA. The MCA is the lesser of the appraised value or the lending limit.

I know that explanation is a little hard to absorb, so let me boil it down this way: the lending limit is basically the maximum appraised value used to calculate the pool of money for which you qualify (the principal limit). Whether your home is worth $726,525 or $1 million or $2 million, you qualify for the exact same amount. You don’t get more cash for any incremental home value beyond the lending limit.

Lower Cost Housing Markets Won’t Be Impacted

This change will have no impact on those with homes valued less than the current lending limit. However, if you live in a high cost real estate market where homes are worth more than the current lending limit, this change could mean a lot more cash for you.

Interestingly, this change comes at a time when interest rates are rising and home values are topping out and starting to fall in many markets. Higher rates and lower home values both reduce how much cash is available through the HECM. The lending limit increase is a positive change for seniors in high cost markets, but it could be offset somewhat by rising interest rates and falling home values.

Get the Ball Rolling

If you’re considering a HECM and live in a high cost market, you may want to get the ball rolling as soon as possible. Rates are still low and home values high, so it’s as good a time as any to get the most you can from a HECM. Higher rates and lower home values in the future could significantly reduce how much you can get from a HECM.

Have a Merry Christmas!

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