The Reverse Mortgage HECM Standard vs HECM Saver may confuse some as to what exactly is the HECM product and how to choose the best option financially. Also, some might be asking what is a HECM (pronounced Heck-um). HECM stands for Home Equity Conversion Mortgage, which is the Federal Housing Administration's (FHA) name for the reverse mortgage. Of course, the government had to make it more confusing by giving it another name that some would not even recognize as the reverse mortgage.
The HECM Standard and the HECM Saver are just two products that the FHA offer when it comes to obtaining a reverse mortgage. The HECM Standard was the first product to come out when the government decided to get into the reverse mortgage business back in the late 1980′s. The FHA set an Upfront Mortgage Insurance Premium for the HECM Standard that could change up or down based on the need of the Mortgage Insurance Fund for the reverse mortgage product. Currently, this closing fee has been set at 2% of the maximum claim amount (lesser of the sales price, appraised value, or FHA mortgage limit of $625,500). For example, if you wanted a reverse mortgage and the appraised value of your home came in at $200,000, then 2% of the value would be $4,000 for the Upfront Mortgage Insurance Premium, which is typically rolled into the loan. Normally, no one pays this fee out of pocket.
The FHA came out with an alternative to the HECM Standard loan on October 4th, 2010, called the HECM Saver. The HECM Saver lowered the Upfront Mortgage Insurance Premium from 2% down to just.01%. For example, based on an $200,000 appraised value the upfront premium would be just $20. So the biggest question is why would anyone want to pay an extra $4,000, when they can pay just $20 for this program. And the answer is Loan Limit!
Once again, on the same scenario of a home coming in with an appraised value of $200,000, the HECM Standard and the HECM Saver have different loan limits that you can take out. If you were to choose the HECM Standard and you are 73 years old, you could take out $109,547 in cash. But with the HECM Saver you could only take out $89,527 in cash. So really, it comes down to need based. How much money do you need now and how much will you need in the future. Based on this scenario, if you need less than $90,000, then you would probably want to go with the HECM Saver, but if you need the full draw amount then the HECM Standard would be the product that you would want.
There are many different financial scenarios when it comes to the reverse mortgage and whether or not the HECM Standard or the HECM Saver is the right product for you.