One of the knocks against reverse mortgages, in general,are the closing costs. These tend to be higher than traditional mortgages and for many borrowers, this is part of the reason why they never pursue one. However, what you might not know is that you can save money by getting a no money down reverse mortgage.
In response to outcries over closing costs, a number of lenders have begun covering closing costs. These include upfront insurance premiums, origination fees, and third party closing costs. By getting rid of these fees, the cost of getting a reverse mortgage goes down for the borrower and lenders hope this will help them originate more of these loans.
Of course, lenders are not doing this for free. They are interested in getting your business. While no money down reverse mortgages may be attractive for some borrowers, you need to read the fine print. In some cases, the mortgages will stipulate that the loan amount needs to be above a certain amount, or they might require the borrower to take all of the cash up front. Another reason lendershave eliminated closing costs is that they reckon to make more money on the interest when the property is sold.
Then again, it is a good deal for the borrowers as they will save thousands in closing costs. The key is make sure that you have a plan for what you want to do with your reverse mortgage and you stick with it.
One program which is a good option if you are looking at zero closing cost reverse mortgages is the HECM saver program. This is a program from the Federal Housing Administration (FHA) in partnership with lenders throughout the country. The program does not carry any upfront insurance premium and is a great way to save money on your reverse mortgage.
Granted this is just one program on the market today. Since the FHA introduced the HECM saver other lenders have followed suit. This has started a trend which has benefited thousands of qualified retirees who are looking at a reverse mortgage as part of their retirement plan.
That being said, you should check the specifics of each mortgage with your lender to make sure your program is the right fit for you. Also, ask about the 3-Day Right of Rescission. Essentially this gives you three days to change your mind if you decide that a reverse mortgage is not the right option for you.
A reverse mortgage is not a home equity loan or a second mortgage. There are no monthly payments. Instead, you use a reverse mortgage to pay off your current mortgage and then the balance can be cashed out, or kept in an account for use at a later date. All you need to pay with a reverse mortgage are the property taxes, insurance, and utilities. That’s it. You are basically freezing any future mortgage payments for as long as you live in your house.
These programs have been around for years and the real advantage is that it lets borrowers use the equity they have built up in their homes after working for so many years. To qualify, you must be 62 years old, own your home, and have a low mortgage balance that can be paid off with a portion of the funds. You also need to prove that you can pay your property taxes and insurance and you must live in the home.
Enough with the information. Let’s get to the fun stuff – saving money. No money down reverse mortgages have become increasingly competitive. While they are not for everyone, Money recently called them ‘A Hail Mary Retirement Plan for Those with Nothing Saved.’
Think about it, you’ve lived through some topsy-turvy economic times. First, it was the dot-com bubble and then it was the housing bubble and the great recession. Even if you survived all of this upheaval, it was probably at a price. So a no money down reverse mortgage is a great option to help secure your retirement. In the end, the choice is yours, but take a look for yourself and then talk it over with your advisor.
While the author correctly asserts that some originators are covering some, or all, of the closing costs, the HECM Saver programs was discontinued 3 years ago. Even then, the HECM Saver was not a "zero cost" loan. It simply eliminated almost all of the upfront insurance premium in exchange for offering the borrower less funds.
However, the upfront costs of a reverse mortgage become less relevant when the program is used properly as a financial planning tool. It's sad that many older homeowners ignore this powerful tool because of upfront fees, when they sustainability benefits have not been fully examined. This program has the ability to extend a homeowner's retirement assets beyond traditional retirement planning methods, and in many cases it can save in taxes, Medicare premiums, and capital gains on long-held investments.
Dan Hultquist, MBA, CRMP
As the article points out, there are many misconceptions about reverse mortgages including the closing costs associated. Each client scenario is different so therefore costs will also be different for each. Don't let this stop you from inquiring about how a reverse mortgage can work for you. Speak to a Certified Reverse Mortgage Professional who can provide you with right information and guide you through the process.
Rick R. Rodriguez
Certified Reverse Mortgage Professional
Licensed Nationwide NMLS#473353