Reverse Mortgages: Reviews & Comparisons
Reverse mortgages can be a useful tool to supplement your income, pay off debt, or cover healthcare expenses.
However, reverse mortgages are not free money. They are loans that you or your heirs will eventually have to pay back.
So, if you do decide to get one, it is essential to comparison shop before you choose a reverse mortgage lender. This guide explains how reverse mortgages work and what you should focus on when comparing lenders so you can get the best deal possible.
SuperMoney's free reverse mortgage customer reviews and comparison tools are an easy way to filter lenders according to the products and features that matter the most to you.
How does a reverse mortgage work?
With a regular mortgage, you have to make monthly payments until the property is paid for. In the case of reverse mortgages, the lender pays you, and you don't have to pay it back for as long as you live in your home.
Money from a reverse mortgage is usually tax-free and is secured by the equity in your home. However, if you sell the house, you do have to repay the loan. If you die, your estate is on the hook for repaying the mortgage. Usually, that means selling the house.
You don't have to make monthly payments with a reverse mortgage. However, you do have to pay property taxes, homeowner’s insurance, and keep your home in good repair. You also get to keep the title of your home.
Another thing to consider is that with a reverse mortgage, interest and fees are added to the balance every month. So, the amount the homeowner owes to the lender goes up – not down – over time. As the balance increases, your home equity decreases.
What are the most important factors you should consider when shopping for a reverse mortgage?
If you decide to go ahead with a reverse mortgage, shop around for the best deal. Make sure the type of reverse mortgage you choose is the right one your needs. The rates, fees, terms, and features of reverse mortgages vary significantly from one lender to another. Checking quotes from multiple lenders could save you and your family a lot of money.
Here are some factors you should consider when comparing reverse mortgages:
- Type of reverse mortgage: There are three types of reverse mortgages: single-purpose, proprietary(also known as private), and Home Equity Conversion Mortgages (HECM).
- The value of your home: This may determine which reverse mortgage type is best for you.
- Fees and costs: The cost of origination fees, interest rates, servicing fees, and closing costs vary from lender to lender.
- Total annual loan cost: Reverse mortgages are complicated financial products that are hard to compare. The total annual loan cost rate helps you understand the yearly average cost of a reverse mortgage.
- The reputation of lender: If you suspect a scam or a salesperson pressures you into using the money from the reverse mortgage to buy additional financial products, walk away.
Don't rush into buying a reverse mortgage. Consider these factors carefully before you make a decision. Here are some questions that will help you when comparing reverse mortgages.
What types of reverse mortgage should you consider when comparing reverse mortgage lenders?
There are three types of reverse mortgages to choose from. Some are exclusive to specific lenders, so it's important to know which one you want when comparison shopping reverse mortgages.
Single-purpose reverse mortgages
These are the less expensive type reverse mortgage. However, they are hard to find. Some state and local government agencies and non-profit organizations offer them. But they’re not available everywhere. They are designed to help low- or moderate-income households deal with specific issues, such as home repairs, property taxes, or home improvements.
If you want a reverse mortgage to finance home repairs, property taxes, or home improvements, you should consider a single-purpose reverse mortgage.
Visit eldercare.gov or call your local Area Agency on Aging and ask for local grants or loan programs for home repairs and improvements.
Proprietary/private reverse mortgages
These reverse mortgages are private loans that are not backed by private lenders instead of a federal agency. Their main advantage is you can get a larger loan amount with a private reverse mortgage than with other options. However, they are often more expensive than HECMs and only make up a small portion of reverse mortgages.
Proprietary reverse mortgages are a good option for homeowners with expensive homes who want to get the highest possible loan amount.
Home Equity Conversion Mortgages (HECMs)
HECMs are the most common reverse mortgages. They are federally-insured and backed by the U. S. Department of Housing and Urban Development (HUD). You can use these loans for any purposes, but the fees and closing costs are not cheap.
They can be used for any purpose and have no income or medical requirements. The downside is that the upfront costs can be high, and the allowable loan-to-value is low compared to other home equity loan options.
You must meet with a counselor before you can apply so they can explain the costs, implications, and alternative options. The HECM mortgage limit is the lesser of $625,500 or a home's appraised value.
Home equity conversion mortgages are the most common type of reverse mortgage. They also have the most forgiving eligibility requirements.
Which payment options should you choose when comparing reverse mortgages?
One of the primary considerations when comparing reverse mortgages is how you will receive your money. Here are the typical payment options:
- Term option: A fixed monthly cash advance for a specific period.
- Tenure option: It is similar to a pension. You get a fixed monthly cash advance for as long as you live in your home.
- Single disbursement: A fixed-rate loan paid in a lump sum. This option usually offers the lowest loan amounts.
- Line of credit: Works like a credit card or home equity line of credit. You draw money whenever you want until you use up your line of credit. This method can save you money because you only pay interest on the amount you use.
Some lenders will also provide a combination of two method payments, such as a line of credit and monthly payments. Home equity conversion mortgages (HECM) offer the most flexibility when it comes to payment options.
Which reverse mortgage are the cheapest?
Single-purpose reverse mortgages are usually the option with the lowest fees and rates. The tradeoff is they are hard to find, and you can only use them for the purpose determined by the lender.
Reverse mortgages are complicated financial products. It is often a challenge to calculate their cost precisely, which makes it challenging to compare reverse mortgages.
When you talk to a lender about a reverse mortgage, ask for the Total Annual Loan Cost (TALC) rate of the loan. This rate has a similar function to APR in regular loans. It provides the projected annual average cost of a reverse mortgage including all the itemized costs lenders add on to the loan.
What fees should you look out for when comparing reverse mortgage lenders?
The rates, fees, and closing costs of reverse mortgage lenders can vary a lot from one lender to another. That is why it is always a good idea to compare the quotes of at least three lenders.
Here are the main fees to consider:
- Up-front mortgage insurance (2% of the claim amount).
- Origination fee
- Application fee
- Administration fee
- Processing fee
- Appraisal fee
- Credit report fee
- Escrow fee
- Lender’s title insurance premium
- Notary fee
- Recording fee
- Monthly servicing fee
Some lenders offer a broker credit to help cover some of the upfront costs.
Which reverse mortgages offer the largest loan amounts?
The maximum loan amount you can get with a reverse mortgage depends on the following factors:
- Your age.
- The type of reverse mortgage you select.
- Value of your home.
- Current interest rates.
- Financial assessment of your willingness and ability to pay property taxes and homeowner’s insurance.
Typically, the older you are, the more equity you can squeeze out of your reverse mortgage.
Proprietary reverse mortgages are not restricted by the federal limits HECMs have to follow. Currently, the maximum loan amount for a HECM is $625,500. So, if you have a high-value home, proprietary reverse mortgages are probably the best option. As long as getting the largest possible loan amount is your priority.
What do you need to qualify for a reverse mortgage?
To qualify for a reverse mortgage, you must:
- Be at least 62 years old.
- Own your home outright (or have a very low balance you can pay off with the reverse mortgage funds).
- Live in the home as your primary place of residence.
- Have no other loans on the house.
- Have financial resources to maintain home (pay mortgage insurance, taxes, etc.).
- Not be delinquent on federal debt.
Those are the basic requirements. Additional requirements may vary by lender and the type of reverse mortgage you choose.
How do shared equity agreements compare with reverse mortgages?
Shared equity agreements are another option for homeowners who want to dip into the equity of their home without having to worry about monthly loan payments.
Companies that offer shared equity agreements give homeowners cash in exchange for a share in the ownership of the property. Here is how shared equity agreements stack up against reverse mortgages.
Loan structure of shared equity agreements vs. reverse mortgages
Although both products offer homeowners a payment-free route to cash, they go about doing in completely different ways. While reverse mortgages are loans that charge an agreed interest rate, shared equity agreements give investors a share a home's future equity appreciation.
The cost of reverse mortgages vs. shared equity agreementsTypically, reverse mortgages have higher fees than shared equity agreements. The origination fees of a reverse mortgage alone are often over $5,000. The cost is much higher if you go for an HECM and ask for a lump-sum payment. Shared equity agrements usually have more affordable closing costs. But the ultimate cost depends on what percentage of appreciation you choose to share and how much your home increases in value.
What other alternatives are there to a reverse mortgage?
A reverse mortgage can make a lot of sense for some retirees. But it's not for everyone. For starters, only homeowners who meet the age requirement can apply. You must also live in the home. It can’t be a rental property. Another key factor for qualifying is having enough equity in your home. Reverse mortgages are Ideal for homeowners who have paid off their home loans completely or have a very small remaining balance. Even if you do qualify for a reverse mortgage, it may not be the best option for you.
The main alternatives to a reverse mortgage are home equity lines of credit (HELOCs), cash-out refinance loans, and selling or renting your property. Read this guide for a detailed look at the pros and cons of each option.
How to find the best reverse mortgage lenders
If you are interested in getting a reverse mortgages and want to know how much it will cost you, it's time to shortlist some top lenders and get some quotes.
The best reverse mortgage lenders will offer competitive pricing, quality customer service, fair terms, and great accessibility.
To review the top reverse mortgage companies head over to SuperMoney's reverse mortgage reviews page and start comparing companies today.
Reverse mortgage pros and cons
While there are many pros, there are also important reverse mortgage disadvantages to consider. Here's a look at both.
Here is a list of the benefits and the drawbacks to consider when shopping for a reverse mortgage.
- No need for repayments initially.
- No income requirements to qualify
- You can increase your income stream in retirement.
- Maintain ownership of the home.
- You can often roll the costs into the loan, so you don't pay them upfront
- You are using up the equity in your home, which means you will have fewer assets to pass on to your heirs.
- Costs are high, especially for Proprietary and HECM loans.
- The loan will become due if you move somewhere else for 12 months (like a full-time care facility).
- Without a "non-recourse" loan, you can owe more than the property is worth.
- You can't get a reverse mortgage if you have a conventional mortgage (unless you use it to pay off the conventional loan balance)
Make sure you talk with an unbiased financial advisor if you have any questions or concerns. It's also important to read reverse mortgage reviews of your top choices.
If you decide that a reverse mortgage is the right financial move for you, here's how to find the best lender.
How to compare reverse mortgage lenders
First, you will want to determine which loan type works best for you. Does a single-purpose reverse mortgage suit your needs? If so, great! That will be the cheapest of the three options.
Do you have an expensive home and want to get the highest possible loan amount? In this case, a proprietary reverse mortgage may be an excellent place to start. For everyone else, HECM is the way to go.
The next step is to find lenders who offer the reverse mortgage type you want. SuperMoney's free reverse mortgage reviews and consumer ratings will help you find reliable lenders. Check the reputation of your top prospects. Can you see a pattern of unresolved complaints? What are their company ratings? What do user reviews say about their customer care?
Once you have a list, create a spreadsheet and compare lenders side-by-side based on their terms, fees, interest rate, total costs, and repayment options. Run all the numbers to find the one that offers the most value for your situation.
Remember that TALC, the Total Annual Loan Cost rate, is a useful way to compare the projected annual cost of a reverse mortgage.
To start your search, check out our extensive list of reverse mortgage companies. Compare reverse mortgage consumer ratings, and read the reverse mortgage comparison reviews and opinions.
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