Senior homeowners who want to explore the reverse mortgage market for the best deal — finding the lowest interest rate and origination fee – must know how to obtain the most updated and comprehensive data. Unlike the standard mortgage market in which price data is available from many sources, including 3rd party sources, multi-lender websites, prices are hard to find for the Reverse Mortgage market.
Few individual lenders spell out complete and up-to-date reverse mortgage prices on their websites. Senior financial counselors are aware of this and caution potential borrowers to carefully examine each lender’s fees before they sign on for a HECM loan.
Calculating the Loan
The most important source of reverse mortgage price data which seniors may access is the HECM calculator which estimates the proceeds that a borrower can expect to receive from his reverse mortgage. Even here, however, it’s a good idea to compare site calculators and even check the NRMLA (National Reverse Mortgage Lenders Association) calculator to get the best estimate of exactly how much one can expect to receive from his reverse mortgage loan.
For example, on November 21st, an individual aged 75 with a $200,000 existing mortgage balance on a home worth $500,000 could find the following prices NRMLA calculator: a 5.060 percent interest rate with a origination fee $6,000. Conversely however, one individual lender offers a publicized 4.25 percent interest rate with an origination fee of minus $2,015 – the “minus” rate means that the lender is offering a rebate that will be credited against settlement costs or the mortgage insurance premium.
These large price differences don’t result from any differences in investor risk, since all HECMs are insured against loss by FHA. There is no subprime versus prime distinction here. It’s important to note that price changes which occur while the loan is in process, on an individual lender’s site, will not be used to justify a price increase on the day that the price is locked. This indicates that it’s better to check prices on an individual lending institution’s site than on the NRMLA site.
Many financial observers feel that Reverse Mortgage origination costs are high. Reverse Mortgage lenders profit on the sale of the mortgage, the size of which depends on the amount of the initial loan. If the profit on that loan is significantly large, competitive lenders will provide a negative origination fee (rebate) to cover the upfront mortgage insurance premium and other settlement costs. The result is a no-closing cost reverse mortgage.
If the profit on the home’s sale doesn’t cover all the costs, it may be large enough to justify a rebate to cover some of the costs. That would result in a low-closing cost reverse mortgage. Potential HECM borrowers should be aware of this option and, if their home’s worth is sufficiently large, should negotiate with the lender to obtain as big a rebate as possible. The rebate option, by the way, is not mentioned on the NRMLA calculator which assumes that the lender will be charging the highest origination fee allowed by law. So again, it is worthwhile to check out each individual lender’s calculator in order to obtain the most comprehensive overview of the true cost of the loan.
As in any consumer activity, obtaining a Reverse Mortgage Loan should be undertaken after research and price comparison.