Compare Reverse Mortgages
Overview - Reverse Mortgages
A reverse mortgage is technically called a home equity conversion mortgage (HECM) and was first signed into law in the United States in 1988. It is a federally insured loan for seniors age 62 and older who own their houses. In it, a homeowner can convert the equity in their home into cash. The money can be received in one lump sum, as a line of credit, or in monthly disbursements. If the senior selects monthly disbursements they can continue to receive monthly payments indefinitely.
To obtain a reverse mortgage you must meet these requirements:
- Be 62 or older
- Own your home outright or have a low remaining mortgage balance
- Attend federally required mortgage counseling
You also must continue to meet these responsibilities for the mortgage to be valid:
- Remain in the house
- Pay all taxes and homeowner fees
- Maintain the condition of the property (repairs, maintenance, etc.)
A reverse mortgage becomes due when the borrower dies, sells the house, or leaves the house.
In times past, spouses who were under the age of 62 at the time of mortgage issuance could be evicted when the primary borrower died. In 2014 the HECM eligibility requirements were amended to protect these spouses. Now, if widow or widower assumes ownership of the property and continues to meet the initial obligations of the reverse mortgage they can remain there indefinitely regardless of their age.
Since the Federal Housing Administration (FHA) insures these loans, they technically never have to be repaid by the borrower. Even if the senior chooses monthly disbursements and lives 35 more years, causing the loan balance to increase past the value of the house, the FHA will reimburse the lender the balance after the property is sold.
Considering this, reverse mortgages are ideal for seniors without heirs, or those who have heirs not interested in maintaining the residence. Otherwise, there are several options open to heirs if they wish to keep the house at the end of a reverse mortgage.
Types of Houses
Reverse mortgages cover 3 types of dwellings:
Single/Multi family homes
Community properties (condo or townhouse)
Manufactured homes that meet certain stipulations
How much will I get?
The size of your monthly payment, credit line, or lump sum payout depends on:
- Your age
- Age of non-borrowing spouse – younger will get lower payment
- type of reverse mortgage
- appraised value of home
- current rates
- home location
A Note on Rates
Reverse mortgages are like regular mortgages in some ways but very different in others.
Like normal mortgages, the interest rate on a reverse mortgage stays fixed for a preliminary period and changes thereafter. But that’s where similarities end.
After the preliminary period in a forward mortgage, your new payment is calculated with the new rate according to what would pay off the house with the remaining term. So 5 years into 30-year term, the rate is adjusted to the current market and monthly payment recalculated to how much it would take to pay off the house in 25 years. Your payment increases or decreases accordingly.
With a reverse mortgage there is no payment; you never feel the effects of an increase or decrease in rates. The interest just gets added to the accumulating loan balance.
Fixed vs. Variable
In a standard forward mortgage, most people choose the fixed option because they are afraid rates will go up. For this reason seniors are wary of variable rate reverse mortgages. But in a reverse mortgage fixed rate means something totally different. Seniors may be inclined to choose the fixed rate option so they are certain how much the loan amount will grow in the future. BUT—a fixed rate HECM is only available as a one-time lump sum disbursement. If a borrower wants to draw monthly payments from their reverse mortgage, they usually have no choice but to go with the variable option.
Seniors might elect the fixed rate, lump sum option if they wish to pay a large-one time expense. But keep in mind lump sum reverse mortgages are a one-time payout. Once you receive the money, that’s it. There will be no more funds unless you choose to refinance another reverse mortgage and your home value would have to have risen appreciably for this to be a viable option.
With all this in mind, developed the following factors and subfactors when ranking reverse mortgage companies. We researched all the top issuers in the field and judged them by how they stacked up to these criteria:
How we Compare Reverse Mortgages
Reverse mortgages were first offered by the federal government in 1988, so they are a relatively new financial product. Be that as it may, there are plenty of national and local banks who offer reverse mortgages, as well entirely online entities and aggregator websites, which offer multiple quotes from various lenders. When judging a given company’s reputation we look at the following factors:
Years In Operation
Equal Housing Lender
Closing Costs/Continuing Fees
Every reverse mortgage has two fees associated, which help the FHA insure the loan. Initial mortgage insurance premium, or IMIP, is a one-time fee that goes to the FHA upon origination. Also, a 1.5% mortgage insurance fee is charged annually.
Beyond this, fees private banks and online portals can tack onto this fluctuate wildly. Much of the bad reputation the reverse mortgage market gets is because of this. And since most all extra fees don’t have to be paid out of pocket and can simply be rolled into the balance of the loan, it is easy for unscrupulous lenders to take advantage of unwary seniors and nickel and dime them to death with excessive or ongoing fees.
With all HECMs you must pay the two FHA-related insurance fees, and the fee for your third-party counseling session (usually $125). We rate companies in this category by the reasonableness of their associated fees after these three.
- Origination Fee
- Servicing Fee
- Mortgage Insurance
- Closing Costs
- Appraisal Fee
- Title Insurance
- Credit reports
Here we assess the options a given lender offers for their reverse mortgages. It is also important to note that all reverse mortgage lenders have different rate and closing cost structures depending on their disbursement options. Where one might offer the best rates for monthly payments, another may offer the best rates and fees for a lump sum payout. We recommend comparing multiple companies and asking as many questions as you can to get the full story on rates and any one time or continuous fees (see below) associated with your preferred disbursement options.
Lump sum in cash at settlement
Line of credit (similar to a home equity line of credit)
Some combination of the above
Here we rate how much informational and customer support a given reverse mortgage lender gives its potential clients.
Rev Mtg Calculator
Print Information if requested
Online Chat Support
Types of Reverse Mortgages
There are two types of reverse mortgages that are not federally insured.
Single Purpose Reverse Mortgage: A single purpose reverse mortgage is usually offered by a non-profit or government agency to seniors of low income. These differ from a home equity loan as they can only be used expressly for the purpose stated. Also, since they are not federally insured the loan has to be covered in the event the home’s ownership changes, the borrower moves to a different primary residence, or the borrower passes away.
Proprietary Reverse Mortgage: A proprietary is an uninsured, unregulated reverse mortgage offered by a private bank. Sometimes called “jumbo” reverse mortgages, these are typically for higher value properties that exceed the HECM limit of $625,500.
For our purposes, we will be featuring companies that provide the different types of federally insured HECMs, and also some that feature jumbo reverse mortgages:
-HECM for Purchase
-Proprietary Reverse Mortgage
Full Reverse Mortgages Comparison
|Company Reputation||Closing Costs/Continuing Fees||Disbursement Options||Support Resources||Types of Reverse Mortgages|
|American Advisors Group Reverse Mortgage||9.5||10.0||10.0||10.0||9.0|
|LendingTree Reverse Mortgage||9.0||10.0||10.0||10.0||9.0|
|All Reverse Mortgage||9.0||9.7||10.0||9.8||10.0|
|Reverse Mortgage Expert||9.5||10.0||10.0||10.0||7.5|
|Retirement Funding Solutions Reverse Mortgage||9.0||10.0||10.0||9.5||9.0|
|Reverse Mortgage Advisors of America||9.2||10.0||10.0||9.0||9.0|
|Good Day Reverse Mortgage||9.0||10.0||10.0||10.0||7.0|
|Reverse Mortgage Educator||9.0||10.0||9.0||10.0||7.0|
|Home Point Financial Reverse Mortgage||8.0||10.0||10.0||10.0||7.0|
|Live Well Financial Reverse Mortgage||8.0||9.0||10.0||10.0||7.0|
|Reverse Mortgage Funding||9.0||7.0||10.0||10.0||8.0|
|Liberty Reverse Mortgage||8.0||8.0||10.0||10.0||7.0|
|NewDay USA Reverse Mortgage||7.0||9.0||10.0||8.0||7.0|
|Proficio Mortgage Reverse Mortgage||6.0||8.0||10.0||10.0||7.0|
Why do reverse mortgages have a bad reputation?
There are several historical reasons people look at reverse mortgages with skepticism. Some are due to misunderstandings, some have been mitigated by HUD, and some are still legitimate concerns.
Family problems – Reverse mortgages are federally insured, but if a borrower’s children wish to retain the home after the borrower’s death the mortgage balance must be paid off. Often, because of bad communication between parents and children, children are unaware of this fact. If the living heirs can’t come up with the money to pay off the loan within 6 months, the house will be sold to pay off the lender. Needless to say children are surprised by this if they initially weren’t aware of the arrangement.
The good news is a reverse mortgage is a non-recourse loan. Because it is federally insured, heirs can never owe more than what the home is worth.
Why is a counseling session required?
Many seniors would take a huge lump sum payout of their reverse mortgage and indulge in unnecessary spending, or shady/fraudulent business ventures or investments. Naturally this kind of irresponsible fiscal activity generated a lot of bad press.
The counseling session is meant to explain the realities of the reverse mortgage to seniors to dissuade this kind of activity. What’s more, in 2015 HUD enacted new rules to limit taking too much money too soon. Your mortgage insurance rate will increase markedly if you remove more than 60% of the loan value during the first year.
What is a non-borrowing spouse?
Up until 2015, if a borrower’s spouse was not yet 62 they were often taken off the home title so the reverse mortgage could proceed. In these situations, spouses could be kicked out of their homes if they could not pay off the mortgage balance at the time of their partner’s death. HUD recently established new protections that specifically stipulate a non-borrowing spouse can remain on the home title AND remain in the house indefinitely after their partner has died.
Will the lender need to take my home title in order to proceed with the reverse mortgage?
No. This was never true. It is simply a myth about reverse mortgages that has endured over time.