Why a Reverse Loan May Not Help You
May 26th, 2010
Related Stories
- Reverse Mortgage Fees
- Reverse Mortgage Lenders Dropping Fees
- Is the HECM Saver right for you?
- When Is An “Origination Fee” Not An “Origination Fee?”
- Saver reverse mortgage gets little traction
Story Tools
A reverse loan isn’t always the best choice for homeowners. While borrowing money can allow seniors to supplement their income, they should consider other options before resorting to tapping home equity. Here is what you need to know about using a reverse home mortgage to help with household expenses.
Borrowing With a Reverse Loan Is Not Free
Various fees are involved when getting a reverse mortgage. Generally, borrowing with a reverse loan is more expensive than getting a traditional mortgage. Among the costs associated with reverse mortgages is the origination fee. If you borrow with a Home Equity Conversion Mortgage (HECM), the most popular reverse mortgage in the U.S., the origination fee is 2% of the initial $200,000 and 1% of the rest of amount that is borrowed. The fee is capped at $6,000. Some reverse mortgage lenders have waived some fees recently so you may find a deal when comparing loans.
Mortgage Insurance
Reverse mortgages require both upfront and monthly mortgage insurance premiums. The HECM upfront premium is 2% of the home value or the area FHA loan limit, whichever is smaller. The annual premium equals 0.5% of the loan balance and is paid monthly. Also expect to pay other closing costs like an appraisal fee.
Reverse Mortgage Age
Another reason you may want to skip applying for a reverse mortgage is that you may be too young to get much benefit from it. Waiting until you are older could give you a larger payout. In addition, if you don’t have enough equity in your home, a reverse loan may not help much. If your home’s value has taken a huge hit in recent years, it could make sense to wait until the housing market recovers more.
- |
-
- |
RSS Feed
