If your parents or grandparents are considering a reverse mortgage, it pays to do your research in order to know exactly what they are getting into, in order to stay safe, and avoid scams.
Currently there is only one type of reverse mortgage available. It is called the HECM, or Home Equity Conversion Mortgage. This mortgage is insured by FHA.
You can obtain this type of mortgage from a HUD lender. Since the credit crunch, there are new rules and regulations these lenders must abide by. The fees are specific, and set by law. There are some HUD lenders, however, who may offer some type of discount.
The maximum amount a lender can offer for a reverse mortgage is $417,000. In addition, the origination fees will be charged as follows: 2% on the first $200,000 and 1% on any amount above $200,000.
What are the fees associated with a reverse mortgage? As an example, let’s assume a house is valued at $200,000. The origination fee would amount to $2500; the Mortgage Insurance Cost would be $4,000; the Closing cost is estimated at $2,200; and the Service Fee is approximately $5,345.
The origination fee is charged by the lender to implement the loan. Again, it is 2% of the first $200,000 and 1% thereafter.
The mortgage insurance cost is a requirement of HUD and is based on 2% of the home’s value up to $417,000. There is an additional .05% of the loan balance attached.
The closing costs encompass services that are performed prior to the reverse mortgage’s finalization, for example, the appropriate surveys, inspections, title searches, taxes, and credit checks.
The service fee is used to cover the costs of any future service fees, and they can range from $20 to $35.
You can compare a reverse mortgage to home equity loans, second mortgages, or a home equity line of credit. However, while a home equity loan may incur lower interest rates, since it is a variable rate, it is also possible that the monthly payments will be significantly higher.
Considering a reverse mortgage requires a great deal of research. Before the credit crunch, there were three types of Reverse Mortgage loans: HUD, Fannie Mae, and the Jumbo Reverse Mortgage. Due to decreases in home values at present, a result of the economic crisis, the only reverse mortgage now available is through HUD.
Do your research, and if you really think a reverse mortgage is right for your family, move forward with caution only through HUD. Avoid scammers or anything that sounds too good to be true. A reverse mortgage can help many seniors, but only if they don’t fall prey to reverse mortgage scammers.