Reverse Mortgages Review
How We Selected Our Lineup
Reverse mortgages have become increasingly regulated and fewer lenders are offering them. For our buying guide, we reviewed statistics from industry groups and the Department of Housing and Urban Development (HUD) to find active lenders licensed in more than 30 states and that issued a high volume of reverse mortgages.
Each lender in this guide is approved by HUD to provide loans that are insured by the Federal Housing Administration. We included Lending Tree, a broker, because it works with many of these lenders, has proven itself to be reliable and connect you with offers from smaller lenders that may serve a more regional audience.
To learn more about reverse mortgages and other loans, check our articles.
What is a Reverse Mortgage?
You may have seen commercials starring celebrities promising, among several claims, retirement stability through a reverse mortgage. This may sound great, but what exactly is a reverse mortgage?
A reverse mortgage, or a home equity conversion mortgage, gives you access to the equity you've accumulated in your home. You can use a reverse mortgage to get an infusion of money to supplement your existing income.
For many of us, our home, and the equity we've accrued with it, represents our largest asset. With a reverse mortgage you can tap into that equity without selling the house. For example, if you have a home worth $300,000 and only have $30,000 left on the mortgage, your equity is $270,000. A reverse mortgage offers some options on how you can tap that equity.
- Lump Sum: This is a single payment, usually for a smaller amount than what other options provide. Typically, with this option, you are restricted to 60 percent of the loan amount. Be aware that you may not get as much money with a fixed-rate, lump-sum reverse mortgage as you would with the other payment options.
- Monthly Term: Fixed cash payments for a specified period of time.
- Monthly Tenure: Fixed cash payments for as long as you live in your home.
- Line of Credit: This option lets you draw from the loan in amount of your choosing. The advantage here is that you only pay interest on the amount you withdraw.
You need to stay current on homeowner's insurance and property taxes. Interest accrues and that amount is added to the total of the loan, which will need to be repaid either when you move out of the house or upon your death.
The Best Reverse Mortgage Lenders
There are many options for reverse mortgage lenders. Here are some of the top options. Rates and fees can vary depending on your location, your home's value and other factors, including global currency markets.
Best All-Around Lender
The largest reverse mortgage lender in the country, American Advisors Group is the only lender to offer loans in all 50 states. Besides basic reverse mortgages, it offers what it calls a "jumbo reverse mortgage," which can be taken out on properties exceeding $625,500. With a jumbo reverse mortgage, you can get financing on a property worth up to $6 million.
Recommendation: Best All-Around Lender – American Advisors Group
Best for Multiple Options
Lending Tree offers a reverse mortgage marketplace where you can enter your information and receive offers from different lenders. This is a useful way to compare your various options and make the choice that is best for you. Lending Tree also has a calculator so you can estimate how much you can potentially receive for a reverse mortgage.
Recommendation: Best Lender for Multiple Options – Lending Tree
Best for Financial Flexibility
In addition to offering traditional reverse mortgages, Liberty Home Equity Solutions offers a few unique products. If you chose Liberty's HECM Zero loan, you get a line of credit similar to a home equity line of credit (HELOC), and you have the option of making payments on the loan rather than waiting to pay it off. It offers a reverse mortgage for purchase, which can help you buy a new home with the proceeds from the sale of your current home.
Recommendation: Best Lender for Financial Flexibility – Liberty Home Equity Solutions
Best for Purchasing a New Home with a Reverse Mortgage
A branch of Quicken Loans, One Reverse Mortgage offers standard reverse mortgage options as well as a HECM (Home Equity Conversion Mortgage) option that allows you to use a reverse mortgage to buy a new home. This can be a good option if you need to downsize but still want to live in a home.
Recommendation: Best Lender for Purchasing a New Home with a Reverse Mortgage – One Reverse Mortgage
Reverse Mortgage Eligibility Requirements
A reverse mortgage is specifically designed for senior citizens. There are several eligibility requirements you must meet to be considered for a reverse mortgage, including:
- You must be at least 62 years of age
- You must own your home or have paid off a significant portion of your mortgage.
- Your home must be a single or multi-family dwelling or an approved condo.
- Your home must be in good condition.
In addition to meeting these requirements, you will need to meet with an HUD-approved counselor to learn about the specifics of a reverse mortgage. HUD provides this tool to help you find counselors in your area.
Generally, there are no specific income requirements, but your lender will conduct a financial assessment to ensure you can pay the insurance, taxes and other fees. In some cases, lenders will set aside funds from the loan to pay for these things.
Rates & Fees
With a reverse mortgage, interest accrues throughout the life of the loan, but you won't make payments until you sell the house or die. If you choose a line of credit option, you'll only be charged interest on the funds you withdraw. Most reverse mortgage lenders don't publish the rates they offer, so you have to contact them for a quote.
When you get a reverse mortgage, you can choose between an adjustable or fixed rate mortgage.
- Adjustable Rate: This is the most common type of reverse mortgage. The rate changes over time and is based on either the Treasury rate or the LIBOR rate, plus a margin determined by the lender.
- Fixed Rate: The rate remains the same over the life of the loan. The rate isn't pegged to any particular index and is set by your lender.
There are several fees associated with reverse mortgages. These include:
- Loan Origination Fee: This is the lender's fee. Rates vary between lenders; you might expect to pay 2 percent of the first $200,000 and 1 percent of anything in excess of $200,000. The origination fee is capped at $600,000. Check with your lender for the exact loan origination fee they will charge you.
- Mortgage Insurance: This is mandated for all FHA loans and protects borrowers from defaults. You pay a percentage up front and then an ongoing percentage for the life of the loan. The mortgage insurance premium is usually added to your interest rate.
- Lender Servicing Fee: This fee, which banks charge to administer your loan, varies depending on the lender you choose. Some don't charge this fee. Often, a portion of the principal of your loan is set aside to pay this fee.
- Appraisal Fee: You'll need an appraisal to determine your home's value. The cost varies depending on where you live and the size of your home, but $450 is about average. This is a cost you'll have to pay out of pocket.
- Closing Costs: These fees cover a variety of things, including credit reports, title insurance, document preparation, settlement fees. Fees vary from lender to lender, and are financed into the cost of the loan.
Pros & Cons
As with any loan, there are both benefits and drawbacks to a reverse mortgage. You should consider these carefully before making your decision.
- You still live in your home and retain the title.
- You can receive the payout from a reverse mortgage a number of different ways.
- Closing costs and fees can be financed into the loan, so you won't have to pay anything out of pocket.
- You won't owe more than your home is worth. If your home's value declines, you or your heirs won't have to pay more when the loan is due.
- Once the loan is paid off, any remaining equity belongs to your heirs.
- Proceeds from a reverse mortgage are usually tax exempt.
- The loan balance increases over time as interest accumulates.
- The most common way to pay off a reverse mortgage is to sell your home. If you want someone to inherit your home, consider another solution.
- Application and origination fees add up. Though fees are financed into the loan, they can eat into the loan proceeds.
- If you have to move out, then the loan becomes due.
- You still must pay for insurance and taxes. If you don't, the loan may default.
- Reverse mortgages aren't typically available for high-value homes.
When to Get a Reverse Mortgage
A reverse mortgage is not for everyone, and you should be cautious if you're considering one. You'll need to stay current on your property taxes and homeowner's insurance. These loans are most often paid off with the proceeds from the sale of your home when you move or upon your death.
This isn't to say that a reverse mortgage isn't useful. There are multiple reasons why one could be worth your while.
- Another source of income: If you're living on a fixed income and own your home, you can use the equity you've accumulated and still live in your house. A reverse mortgage can give you an additional monthly payout in addition to your retirement or Social Security income.
- Home repairs: If you're retired and have a limited income but need to make crucial improvements to your home, a reverse mortgage can be a good option. In particular, a HELOC that you use only for the cost of repairs can be a wise choice.
- Purchase of a new home: Sometimes after retirement (and long after your kids have left home), you find yourself living in a house that's too big. A reverse mortgage can help you purchase a new, smaller home that won't require ongoing monthly payments (or a lot of upkeep) and won't require you to use draw on savings.
A reverse mortgage can let you use the equity you've accumulated in your home to supplement your income, pay for repairs or renovations or downsize to a home that better fits your current lifestyle. We've created a lineup of the 10 best reverse mortgage lenders so you can find a lender that best suits you.