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Reverse Mortgage Plans: HECM Saver vs. HECM Standard
If you are over the age of 62 and interested in getting a reverse mortgage, you may be confused as to where to start. The entire process can be slightly overwhelming—after all, you have to think about options like lump sum vs. line of credit and fixed rate vs. adjustable rate. Not to mention you need to first figure out if you can afford a reverse mortgage at all!
This is where the HECM Saver and HECM Standard comes in. HECM, or Home Equity Conversion Mortgage, is the only reverse mortgage plan that is insured by the federal government. Specifically, the Federal Housing Administration (FHA) and Housing and Urban Development (HUD) are in charge of these plans. However, if you are looking to get a reverse mortgage, you will need to go through a third party that hands out these reverse mortgages.
What Is the Difference?
The main difference between the HECM Saver and HECM Standard is the rates associated with each plan. The standard plan features higher initial costs and rates but has a much higher yield in the long run. For this reason, many people were unable to get reverse mortgages before the HECM Saver was introduced.
The HECM Standard was the only plan offered until 2010, and as the default plan, is probably the most common. When the saver was introduced, it opened up the world of reverse mortgaging to a populace that was previously unable to afford them at all. Where the standard plan charges 2% of the homes equity upfront, the standard plan offers an almost insignificant .01%. The tradeoff, as stated above, is that you will receive somewhere between 10% and 18% less from your reverse mortgage if you go with the HECM Saver.
Which One Is Right for Me?
Without examining your individual financial situation, there is no way to tell for sure. That being said, the general rule of thumb is that if you can afford the HECM Standard, you should go with it. It is simply a much better investment for your money. If not, then you should consider the HECM Saver plan but be very weary about it. It is very possible that you should not be getting into a reverse mortgage at all if you are having financial troubles that a re too great to cover upfront costs. Even the HECM saver plan is a very expensive option.
Regardless of which plan you go with, being able to afford a plan does not just mean having enough money to cover the upfront costs. You should be able to have enough money set aside to comfortably cover these costs without throwing yourself into financial turmoil. This is crucial as reverse mortgages should not be used as an entire retirement plan, rather as a supplement to a retirement plan that you already have in place. Because of this, it is advisable to talk with an accountant and figure out how much money you can comfortably set aside before learning the details of each plan available.