How To Evaluate a Reverse Mortgage

Posted on September 6, 2011


Axsmith Law

Pick your type. By far the most popular reverse mortgage is the Home Equity Conversion Mortgage, insured by the federal government and offered through private banks. There are also public sector loans offered by state and local governments, often aimed at low- or moderate-income homeowners for specific purposes, and proprietary loans backed by the companies that offer them.

Calculate costs. Count on an origination fee equal to 2% of the loan value and a 2% insurance fee, plus other closing costs. Altogether, your costs may add up to 5% of the home’s value. Fees can be folded into the loan amount.

A new option. In 2010, the Federal Housing Administration introduced the Saver loan, which has much smaller upfront costs. In exchange, the amount that can be borrowed is up to 18% less than with a traditional reverse mortgage and the interest rate may be a quarter to half a percentage point higher.

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