Choosing the right reverse mortgage can be tricky as there are a lot of providers on the market today and many of them are offering special incentives to get you to borrow from them. That being said, there are a few things you should know before getting a reverse mortgage. So, if you are looking for some inside information on how to get the best deal on your reverse mortgage, then you have come to the right place.
First things first, for most people the right reverse mortgage is the Home Equity Conversion Mortgage (HECM) which is guaranteed by the Federal Housing Administration (FHA). While these loans might have slightly higher fees and you will be required to talk to a counselor before closing, these loans contain several safeguards which protect homeowners. These include protections which limit how much you can borrow and, more importantly, how much you can owe relative to the value of your home.
- What if You Need to Borrow More Than the HECM Allows?
While FHA loans are meant to cover most people in most parts of the country, there are instances where the loan amount required is more than the loan limit. In these instances, the borrower will need to get what is called a ‘jumbo loan’.
Yes, there are lenders who offer jumbo or proprietary reverse mortgages. However, the distinction is that these loans are private label loans – they are not guaranteed by the government. As such, you will need to check lender closing costs and other fees as terms will vary from lender to lender.
Remember it is not just the interest rate which you need to consider. Look at the Annual Percentage Rate (APR) as this will include the interest rate, plus any other fees. Also, check out the terms covering mortgage insurance and the closing costs. Lastly, take a careful look at the amortization schedule as this will outline how the balance due will accrue over time.
- Check the Fine Print
‘Buyer beware’. This saying is true in most aspect of life, so why should reverse mortgages be any different? Don’t get sucked in by special offers. Check the details and find out what it really is that you are signing up for.
Remember the lawyer at a mortgage closing is working for the bank. While they are required to review the details of the loan with you, they are always going to give you a positive spin. As such, you want to make sure you check the fine print yourself and if you have a question, then make sure to ask.
While most loans come with a three-day right of rescission, if you are not sure about something, then talk to your own real estate lawyer to make sure you understand all the details.
- To Take the Lump Sum Payment or Not?
A lump sum payment is oftenthe most expensive form of reverse mortgage. This is easy to understand as you are taking all the money today and the interest will start accruing from day one.
On the plus side, a lump sum payment usually means that your interest rate is fixed. However, this might not be a help if you don’t need all the money today. Another reason not to consider a lump sum payment is that the principal on most reverse mortgage lines of credit appreciate over time.
As such, a line of credit allows you to continue to tap into the equity of your home over time. While a lump sum payment usually means you are ‘one and done’. That being said, there are instances when the only option is a lump sum payment. Just make sure you understand how this will work before you sign on the dotted line.
- You Can Refinance
Granted interest rates are creeping up again, but maybe home values in your area are finally above historic highs. Even if you already have a reverse mortgage, you might want to consider refinancing – especially if it makes sense for you.
Just make sure you know how the fees will be calculated and how much you will owe at closing. Refinancing a reverse mortgage is just like refinancing a traditional mortgage in that you should only do it if it helps you to better position yourself over the long-term.