Reverse Mortgages Can Assist Seniors With Funding Their Retirement
Seniors who need help paying for retirement expenses might benefit from a reverse mortgage. A reverse mortgage is a backward loan that pays a homeowner a fixed amount of money based on the home’s equity.
Seniors who are over age 62 and who own their home qualify for a reverse mortgage backed by the federal government or a private lender.
Video: Reverse Mortgage Benefits
How Does a Reverse Mortgage Work?
A reverse mortgage is available in either a lump sum of money, monthly installments, or as a line of credit that the borrower can draw against. The homeowner isn’t responsible for repaying a reverse mortgage as long as he/she resides in the home. The reverse mortgage is due once the homeowner moves permanently or passes away.
Types of Reverse Mortgages
There are two major types of reverse mortgages. A Home Equity Conversion Mortgage or HECM is a government-backed reverse mortgage that typically has a lower interest rate and lower fees. The Federal Housing Authority (FHA) guarantees that you’ll continue receiving the benefits of your reverse mortgage if the bank offering it fails. Private reverse mortgages are available from many banks and allow borrowers to borrow against homes that have higher equity. Private reverse loan aren’t backed by the government and often have higher interest rates and fees.
Video: Understanding Reverse Mortgages - Pete the Planner
Reverse Mortgage Cost and Fees
Fees for a reverse mortgage are similar to those that are encountered with a home purchase. The fees include closing costs and other loan administration costs and range from 8% to 10% of the home’s value. Fees are taken directly from the reverse mortgage, so the borrower doesn’t typically pay anything out of pocket.
Seniors thinking about taking out a reverse mortgage can find out their potential income stream by using a reverse mortgage calculator like this one from AARP.org.
Watch Out for Reverse Mortgage Scams
Unfortunately, there are many people out there who only want to take advantage of seniors. Watch out for companies that seem to try to “sell” you a reverse mortgage. The decision is entirely up to you and you shouldn’t be pressured into selling the equity in your home. If a reverse mortgage salesperson doesn’t seem knowledgeable about the product and can’t answer your questions, it could be a scam. Watch out for inconsistent answers and statements that seem suspicious.
There are several banks all over the country offering reverse mortgages. Here are a few of them.
Companies Offering Reverse Mortgage
Bank of America offers both private reverse mortgages and HECMs. The private reverse mortgages has a 18% CAP on the APR. A HECM through Bank of America will have a much lower interest rate capped at 10% and of course, backed by the government. Bank of America is one of the largest and healthiest banks in the country having survived the credit crisis of 2007.
MetLife Bank, N.A. provides you with a fee educational kit including a DVD that helps you learn more about the reverse mortgage process. The bank also has reverse mortgage consultants to help you determine whether a reverse mortgage is for you. You can even fill out the application in your home.
Wells Fargo is one of the oldest and best banks in America having been given a AAA rating by S&P. Part of Wells Fargo vision is to satisfy all their customers’ financial needs. They can help fund your retirement through a reverse mortgage.
Dollar Bank only recently began offering reverse mortgages, but it is an approved HUD Lender and member of the National Reverse Mortgage Lenders Association.
You can find more reverse mortgage lenders in your state by visiting the National Reverse Mortgage Lenders Association’s website at ReverseMortgage.org.