Lenders Cutting Fees on Reverse Mortgages
Get widgets
Print
Facebook
RSS- By:
- Kirk Haverkamp - MortgageLoan.com
There’s renewed interest in reverse mortgages these days, as many lenders have slashed the fees associated with them. But is it enough to make them a good deal for older homeowners looking to tap the equity in their homes?
Reverse mortgages have long been considered a convenient, though expensive, way for homeowners age 62 and above to borrow against the worth of their homes. Basically, they’re a form of home equity loan. Only instead of paying it back, the lender gains an equity share in the property that is repaid when the home is eventually sold.
Fees reduced
One of the things that made reverse mortgages a fairly expensive way to borrow money has been that they traditionally come with fairly steep upfront and maintenance fees. But recently, many lenders have either reduced or totally eliminated the origination and servicing fees they charge on reverse mortgages – including Bank of America and Wells Fargo, among others – saving borrowers thousands of dollars and making reverse mortgages a more attractive proposition. Many are reducing interest rates as well.
These savings can be substantial. For a standard FHA-back Home Equity Conversion Mortgage (HECM, the most common type), lenders can charge origination fees as high as 2 percent of the home’s value – up to a maximum of $6,000. Servicing fees can be as high as $35 a month, or $420 a year. If you stay in the home another 10 years, that $420 a year would have become $4,200 taken out of the home equity. So reducing or eliminating those fees can readily save a borrower $10,000 or more.
There are several reasons this is happening. First, demand for reverse mortgages had fallen, so lenders were interested in generating more business. In an uncertain economy, reverse mortgages are an attractive service for them to provide, since the borrowers have substantial equity in their homes – default is not a concern.
Also, until recently lenders were able to package reverse mortgages for sale as securities guarantee by Ginnie Mae, which provided a level of security for those investments. However, Ginnie Mae has currently suspended approvals for new issues of reverse mortgages pending a review of the risks involved.
The advantage of a reverse mortgage is that it provides a relatively safe way to borrow against your home equity in retirement. You can never lose your home as long as you live in it or be required to pay the loan back – the lender’s only claim is to a portion of the home equity when the home is eventually sold.
Costs may be hidden
On the other hand, one of the major downsides of a reverse mortgage is that the costs can be nearly invisible – they’re typically rolled into the loan and charged against the equity in the home, so the borrower may not realize just how much he or she is paying. For example, a 5.5 percent interest rate on a $100,000 fixed-rate loan will continue to accumulate as long as the borrower is in the home, gradually reducing the owner’s equity.
In a reverse mortgage, the home is typically sold and the lender paid off after the borrower(s) either dies or moves into a retirement home and no longer occupies the property. Whatever goes to the lender, of course, is not available to leave to heirs or use to pay for a comfortable retirement home.
Also, be aware that residing in a retirement or nursing home for six to 12 months may result in a determination that the home is no longer the borrower’s permanent residence, thereby forcing a sale.
Other home equity products
Even if you qualify for a reverse mortgage, you may wish to consider other types of home equity loans instead. Interest rates for standard home equity loans and lines of credit are typically less than they are for reverse mortgages, and origination and other fees are typically much less as well. You do have to begin repaying these immediately, of course, but depending on the amount borrowed, this may still be manageable even on a fixed income.
The key thing when considering a reverse mortgage or other type of home equity loan in retirement is to understand all the costs involved, how they will play out over time and how they compare to other financial options. If the numbers add up, fine – it’s probably a good option for you. Just make sure it’s the best one for you and your circumstances.
Low Mortgage rates is our mission
Bringing the best rates on the market to
you is our primary focus. Fill the form to get a quote based on your conditions.
/Mortgageloan.com
-
New Home
Looking to get on the property ladder? Discover your spending power. Get a rate quote today.
-
Debt Consolidation
Are your debt woes getting you down? Explore your options now by filling out our form.
-
Home Equity
Is fluctuating home value a constant cause for concern? Our advice - take out a new loan today.
-
Mortgage Calculators
Need help getting a grip on your expenses and finances. Try one of our 137 multipurpose calculators.
Call For Rates
800-419-1494
Speak to a lender now.
We will match calls to our toll free number with our network of lenders.Get Mortgage Rates
National Rates
| Loan Type | Today | +/- |
|---|---|---|
| 30 yr fixed | 3.72 |
|
| 15 yr fixed | 3.03 |
|
| 5/1 ARM | 2.75 |
|
Rates may contain points
Browse Mortgage Rates
Featured Guides
Browse our comprehensive guides to popular topics related to mortgage and personal finance.