In late 2006, Reverse Mortgage of America, a subsidiary of Seattle Mortgage, introduced The Lifestyle Plan. It was the first new reverse mortgage product to be introduced in nearly a decade. In 2007, Bank of America purchased the reverse mortgage products of Seattle Mortgage. The mortgages are being marketed as the Senior Equity Reverse Mortgages, and as of the writing of this post, is only available in Arizona, California, Delaware, the District of Columbia, Georgia, Maryland, North Carolina, South Carolina, Texas and Virginia.
Like the Cash Account Plan, the Senior Equity Reverse Mortgage allows homeowners age 62 and older to use some of the equity in their homes while continuing to live there. It is designed for owners of high-value homes. Borrowers may choose to receive their funds in a single lump sum, in regular monthly payments, as a line of credit, or any combination of these options. So, unlike the Cash Account Plan, the Senior Equity Reverse Mortgage offers a monthly payment to borrowers.
The interest rate on the Senior Equity Reverse Mortgage is the six-month London Interbank Offered Rate (LIBOR) Index, plus 2.95 percentage points. The interest rate may vary, but may not exceed 18%. Borrowers pay a loan origination fee of 1% of the home value but not more than $10,000. Borrowers also pay a monthly servicing fee of $25.
The proceeds from a Senior Equity Reverse Mortgage may be used to purchase a primary residence or a second home. The borrower would be responsible for a down payment equal to the difference between the value of the new home and the amount of funds received from the Senior Equity Reverse Mortgage.
This post was written with text from the Congressional Research Service report Reverse Mortgages: Background and Issues, April 8, 2008.