Reverse Mortgage Guide

Last month I wrote about the REX program, a reverse mortgage where the lender (Rex & Co.) is paid on the basis of increased equity if the value of the home goes up — and where the lender takes on part of the loss if the value of the property declines. In other words, a risk-sharing reverse mortgage.

You can see the full blog item at: “Is This The King of Reverse Mortgages?

The San Francisco Chronicle now has an in-depth look at the program entitled, A new way to tap equity without going into debt which offers several interesting points:

“Rex,” says the paper, “does not charge up-front fees, but the homeowner pays for standard real estate services. In originating a Rex deal, the homeowner would pay for an appraisal, an escrow fee to a title company and title insurance. The latter two are because the home’s title would be amended to show Rex as having a lien against it. Rex offers some rebates on those fees.”

However, there can be fees when Rex is approached indirectly.

The paper says that “homeowners referred to Rex through financial advisers or mortgage brokers might be charged fees by those individuals, the company said. To discourage flipping, Rex charges an early exit fee for properties that are sold within five years. The exit fee is 25 percent of the cash advance in the first year and declines by five percentage points a year over the next five years. Homeowners can end their Rex arrangement at any time by paying the company the original investment plus Rex’s agreed-upon share of the home’s appreciation at that point (plus the early exit fee, if appropriate). The appreciation would be determined by an independent appraiser.”

In other words, the REX lender wants a five-year shot at appreciation. That hardly seems unreasonable.

Alternatively, does the exit penalty apply both when the property is sold and when it is refinanced? A 25 percent penalty could be a problem if an owner passes away in less than five years — not exactly something most owners control.

As always with any reverse mortgage product, get independent advice from an attorney who specializes in elder law.

This entry was posted on Monday, July 9th, 2007 at 1:38 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.