A reverse mortgage is a loan where homeowners aged 62 or older, who have paid off their mortgage, can borrow money against their home’s value. The amount is received as a lump sum, fixed monthly payment, or line of credit. Also, borrowers need not make loan payments. The entire balance is due after the borrower passes away, sells the home, or moves out. Here are a few things to know before getting a reverse mortgage.
What are the costs of a reverse mortgage?
Here are the Home Equity Conversion Mortgage (HECM) costs to keep in mind:
Mortgage insurance premium (MIP)
Homeowners who take loans backed by the Federal Housing Administration (FHA) must pay reverse mortgage insurance premiums (MIP). A two percent initial MIP is paid up-front on applying, and the annual MIP equals 0.5 percent of the total outstanding loan balance. One can choose to finance the insurance premium into the loan.
Origination fee
Lenders unusually charge an origination fee to process the HECM loan. The amount could be the greater of $2,500 or two percent of the first $200,000 of the home’s value. An extra one percent is added if the value exceeds $200,000. However, the maximum fee is capped at $6,000.
Servicing fees
Lenders may charge a monthly fee to monitor and maintain the homeowner’s HECM for the loan’s lifespan. The maximum fee is $30 a month for loans with a fixed or annually adjusting rate. For monthly adjusted rates, the maximum chargeable amount is $35.
Third-party fees
Lenders ideally collect third-party fees to pay third parties for the services rendered. It may include appraisal fees, home inspection fees, and credit check fees.
How to get the most out of a reverse mortgage?
Reverse mortgage repayment only happens after the homeowner moves out or passes away, but the plan can eat into funds for essential services. These tips help ensure the homeowner has everything covered:
Stay in the home for longer
The initial cost of setting up a loan is higher than for other home equity loans. Therefore, borrowers can make the loan more cost-effective by staying in the home for as long as possible.
Check for benefits
Homeowners should check with the provider about any current or future benefits they are entitled to, such as Medicaid, food stamps, and Supplemental Social Security Income. A reverse mortgage can affect one’s eligibility for such programs.
Seek professional advice
As a reverse mortgage is a big decision, homeowners may hire counselors to help them consider their financial options. The counselor can help pick from the different reverse mortgage products.
Use the money wisely
Borrowers must not use a reverse mortgage loan to invest in the financial market or spend on leisure activities. It is best suited for covering outstanding dues and unprecedented costs.
Which lenders to consider?
Finding the right reverse mortgage company is key to getting the most cost-effective deal. Here are three popular companies and their services:
American Advisors Group (AAG)
Founded in 2004, this company has become one of the most reputable reverse mortgage companies. They offer a range of reverse mortgage services, including the AAG Advantage jumbo reverse mortgage, lump-sum payouts, and a growing line of credit.
Reverse Mortgage Funding
Borrowers who choose Reverse Mortgage Funding can rest assured their mortgage needs will be met. Even homeowners in select states, as young as 55, can opt for the Equity Elite® plan for financing. The brand even offers a $1,000 gift card if it cannot beat a competitor’s pricing. The terms and conditions for the gift card are available on their official website.
Liberty Reverse Mortgage
Liberty Reverse Mortgage is a direct lender and one of the largest HECM lenders in the country. The company is known for flexible terms and upfront fees bundled into the loan. Furthermore, Liberty Reverse Mortgage offers the Liberty Iron Clad Guarantee, a service that matches or beats what competitor programs provide.
