Choosing a Reverse Mortgage

On February 16, 2025 By newsroom Topic: Buying A House

What Are Reverse Mortgages?

A loan option for homeowners aged 62+ to borrow against their home equity without monthly repayments.
Funds are due when you move, sell, or pass away.
Payment options: lump sum or recurring disbursements.
Nonrecourse loan: Lenders cannot demand more than the home's value.

Reverse Mortgage Requirements

Age: 62 or older.
Residency: Home must be your primary residence.
Equity: Own home outright or have a low mortgage balance.
Debts: No federal debts in arrears.
Financial Maintenance: Ability to pay property taxes, HOA fees, and homeowners insurance.
Condition: Keep the home in good shape.
Counseling: Required for HECM loans, approved by HUD.

Types of Reverse Mortgages

Home Equity Conversion Mortgages (HECM): Most common, backed by HUD, funds for any purpose.
Proprietary Reverse Mortgages: Privately insured, ideal for higher-value homes.
Single-Purpose Reverse Mortgages: Funds for specific purposes (e.g., home repairs), offered by local/state agencies.
HECM for Purchase: Combines reverse mortgage with a home purchase in one transaction.

Reverse Mortgage Costs

Upfront Fees:
Origination Fee: $2,500 (homes < $125k) or 2% on the first $200k and 1% above $200k (max $6,000).
Appraisal Fee: $300 - $500.
Closing Costs: Covers title search, credit checks, recording fees, etc.
Ongoing Costs:
Annual mortgage insurance premium: 0.50% of the outstanding balance.
Interest, service charges, and home maintenance.

Reverse Mortgage Application Steps

Consultation: Discuss with family to determine if it's the right fit.
HUD Counseling: Required for HECM loans.
Choose a Lender: Research reviews, fees, and services.
Submit Application: Includes appraisal and income documentation.
Loan Approval & Disbursement: Typically takes 30 - 45 days.

Pros and Cons of Reverse Mortgages

Pros:
- Allows aging in place while halting regular mortgage payments.
- Tax-free funds that don't impact Social Security.
- You"9ll never owe more than your home's value.

Cons:
- Foreclosure Risk: Failure to pay taxes/insurance or maintain the home can lead to default.
- Reduced Inheritance: Equity reduction may leave less for heirs.
- High Closing Costs: More expensive upfront than traditional mortgages.

Customer Experience Insights

Overall Satisfaction:
87% of customers rated their lenders 4 or 5 stars.
Top lenders have 4.4+ star ratings, emphasizing service and staffing quality.
Common Complaints:
Fees: Customers often find costs higher than expected.
Delays & Communication Issues: Long processing times and lack of updates frustrate borrowers.
Multiple Appraisals: A source of annoyance for some applicants.

Tips for Choosing a Lender

Ask detailed questions about fees and timelines during your initial consultation.
Look for lenders with experienced staff and positive reviews about customer service.
Ensure the lender explains all risks and ongoing financial responsibilities clearly.

Reverse mortgages can be a valuable tool for retirees, but careful consideration of costs, risks, and long-term plans is essential.