Reverse mortgages and the new law

How the Housing Law Affects Reverse Mortgages - US News and World Report

Here's how the new law affects reverse mortgages and what you still need to be wary of.

Instant cash—with strings. A reverse mortgage is a loan against your home if you're generally age 62 and over that doesn't have to be paid back as long as you live in that house. Tapping home equity to finance your golden years is growing in popularity, with 107,367 reverse-mortgage loans made in fiscal year 2007, up from 6,600 loans in 2000, but they still account for only about 1 percent of older households, according to the AARP. After you pay a variety of fees on the loan, you can get a lump sum, monthly payments, a credit line, or a combination of these options based on the value of your house. If the home is sold, the loan must be repaid with the proceeds, and any equity that remains after that is distributed to the borrower.

Know the limits. Most reverse mortgages are home equity conversion mortgages, which are backed by the Federal Housing Administration, so you'll still get your money even if the lender goes under. (The other two types are private loans and single-purpose reverse mortgages offered by some state and local government agencies and nonprofit organizations.) FHA limits the amount you can borrow with a HECM, which ranges from $200,160 to $362,790, depending on the county you live in. The new housing law, which will take approximately 60 to 90 days to implement, creates a single national loan limit of $417,000 that can increase to as much as $625,500 in high-cost areas.