Reverse mortgages have the potential to offer a solid financial foundation for the future, and a better retirement for many. That said, these special mortgages are only available to certain people who meet very specific requirements and are also often seen as controversial in the press - the accusation tends to be that the loans are not always created fairly and can cost people a lot more money than they expect. Indeed, some people have lost money and investments because they didn’t work with the best reverse mortgage companies (opens in new tab) or read the fine print attached to their reverse mortgage first.
To ensure that you really do achieve your goals of a relaxed and profitable retirement, you need to know what reverse mortgages are, how they work, and what qualities your service provider should possess. If you know exactly what to expect, then you will go into the process with open eyes and a firm knowledge base from which to begin.
The reverse mortgage process
If you are 62 years or older, then you are likely eligible for a reverse mortgage. These loans allow you to borrow from your home’s equity, using the cash to fund your lifestyle without having to sell your home. There are different types of reverse mortgage payout – you can get payments over time, a line of credit that’s accessed within specific requirements, or a lump sum. The type of reverse mortgage payout will depend entirely on your home, your equity and your needs.
Once you’ve taken out a reverse mortgage, you don’t need to pay it back for as long as you live in your home. If you move or don’t live in the house for extended periods of time – usually more than six months – they you will likely have to pay back the loan by selling your home. The same applies if you move out, sell your home or pass away – the loan becomes due.
During the course of the loan you still have to pay for some of the standard home fees. You’ll be expected to pay your property taxes and insurance, and to maintain the home overall. The fees you pay on a monthly basis will depend on the loan you’ve taken and the service provider you’ve chosen, but insurance and upkeep and taxes are mandatory no matter who you choose.
Before you start whittling down your list of finalists, visit the Federal Housing Administration (opens in new tab) for a complete list of approved lenders. Make these your priority. If accreditation with the Better Business Bureau (opens in new tab) is important to you, then check there as well. Use this list of companies as your starting point.
This is your first check box when selecting a service provider. Look at their fees, their interest rates, their financial requirements over the long and the short term, and use a reverse mortgage calculator to get a clear picture of your costs versus your benefits. At this stage of the selection process, the most expensive will be rapidly identified. However, cost does not always mean that the company is a bust – there are other factors to consider too.
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Variety, choice and options
There are so many different types of reverse mortgage that you’re actually spoiled for choice when you start out. Some companies, like One Reverse Mortgage (opens in new tab), have created specialized reverse mortgage packages (theirs is called HELO) that cater for different lifestyles and financial positions, others are more traditional and expect you to tick every box. Most will offer you the following: proprietary reverse mortgages, Home Equity Conversion Mortgages (HECM), HECMs for purchase, and single-purpose reverse mortgages. Each of these brings something different to the table.
This is the second consideration when selecting a service provider. Look at the different types of reverse mortgage they have on offer, how much information they provide about these offers, and the eligibility requirements. This will rapidly winnow down your list to some finalists who are winning on price, accessibility, transparency and choice. That said, you need to also take a third element into consideration before you pick your final three – customer reviews.
A company could have low fees, a stunning package, clear cut costs and a great proposition but they may have had brutal customer reviews. In such a competitive market with so many risks involved, it’s critical that you see what other people have experienced with a service provider before you commit. Sometimes a company can look magnificent on paper but leave a trail of miserable people behind.
Build a chart
Prepare a spreadsheet that lists all of the fees and costs involved in getting a reverse mortgage. Include ongoing fees and ongoing costs on your side. Add in customer reviews, reverse mortgage loan types, transparency, accessibility and access to information. Then, take your finalists and input the information in the columns so you can see exactly how they measure up against one another. In some cases, you’ll find that they are almost identical, in others they may be very different. The criteria that you use to finally determine the right provider will entirely depend on what you need as a person and your financial situation.
In another column, put down your Total Annual Loan Costs – these are a really important way of seeing exactly how much of your equity you’re signing over to the service provider. If this is very high, it’s worth bypassing the company and looking at someone else. Your reverse mortgage has to be beneficial to you in the long term as well as in the short term. And also check any finalists on your list against the National Reverse Mortgage Lenders Association (NRMLA (opens in new tab)) to make sure they’re legitimate and high quality.
Just remember, this is a serious financial commitment that can affect your future, your credit rating and your finances so go into it slowly. If an offer is too good to be true, it probably is. Be pedantic and gather up as much information about your reverse mortgage provider as you can before you make your final decision. It’s worth it.