Reverse Mortgages Become More Affordable
Reverse mortgages have traditionally been considered one of the more expensive ways to get cash from your house property. Some big reverse mortgage lenders are now reducing closing costs, thereby helping affluent homeowners wanting to generate additional income by opting for a reverse mortgage.
Reverse mortgages are special loans which allow people 62 years of age and above to convert their home equity into cash. The home owner can receive a fixed monthly income from the bank during his or her life time. When the borrower passes away, moves or sells the house, the loan becomes repayable. The heirs typically sell the property, pay the balance and keep whatever remains.
The fees associated with a reverse mortgage have usually been somewhere near to 5% of a home’s value. There have been new cuts in this fees which means that homeowners can now save nearly $10,000 on the closing costs.
Bank of America Corp., Wells Fargo & Co., and other lenders have dropped or reduced their servicing or origination fees related to reverse mortgages.
Lenders have been cutting costs now in order to improve their business prospects. For the period from Oct. 1, 2009 to March 31, 2010, home equity conversion mortgage (HECM) volume fell 22% when compared to the same period a year earlier. The HUD (Department of Housing and Urban Development) has also cut the amount of equity that reverse mortgage borrowers can extract, by 10%. This caused problems for some homeowners as they could no longer qualify to pay off their regular mortgage with the proceeds from the reverse mortgage.
MetLife Inc. dropped its monthly servicing charges and its reverse-mortgage origination fee in March. This has led to more leads getting generated from better-off elder homeowners who had previously been put off by steep closing costs.
Federal law allows origination fees to run as high as $6,000. Homeowners still need to spend on mortgage insurance, which the HUD requires for most products.
So far, the cuts in fees apply mainly to the plain-vanilla fixed-rate HECM which is backed by the FHA (Federal Housing Administration). This product alone accounts for almost 60% of reverse mortgages.
Lenders like Wells Fargo are giving borrowers a break on monthly servicing fees and origination fees for adjustable-rate reverse mortgages. Barbara Stucki, vice president for the National Council on Aging’s home-equity initiatives says more of the costs are now being included in the interest rate, like a conventional mortgage. You may be better off with an adjustable-rate loan if you don’t need a large amount up front.
Consider consulting with a HUD-certified reverse mortgage counselor to learn more about the options available to you, if you are seeking a reverse mortgage. The National Council on Aging and other nonprofit groups are offering such free counseling to homeowners until the end of April.
