Everywhere you turn you hear or see in print that reverse mortgages are expensive. I wonder what they are comparing them to to come up with this statement.
A conventional mortgage where one has to qualify for the loan based on income, credit, assets and ability to make the payment? Where the interest rate is based on one’s income, credit, and assets? Where one has to make monthly payments? Where the loan has to be repaid in full either from the sale of the property or from assets? Selling and moving? Where there are fees for a realtor, closing fees, moving costs and rent? Do they really think these options are less expensive?
Have you compared the reverse mortgage to a conventional mortgage? Let’s take a look:
| Terms | Conventional Mortgage | Reverse Mortgage |
| Retain Title/Own Home | Yes | Yes |
| Use Home For Collateral | Yes | Yes |
| Lien Placed Against Property | Yes | Yes |
| Income Requirements | Yes* | No |
| Credit Score Requirements | Yes* | No |
| Monthly Payment Requirements | Yes* | No |
| Repayment Term | 15 years, 30 years, etc* | When home is no longer primary residence or 150th birthday of borrower |
| Closing Costs | Origination fee, third party fees, possibly FHA Mortgage Insurance | Origination fee, third party fees, FHA Mortgage Insurance Premium** |
| Amount To Be Repaid | Loan Balance | Loan Balance |
| Non-recourse, there is no personal liability to the borrower(s) or their estate | Not an option – full loan balance is due and would be paid from the estate if not from the sale from the home | Yes, the estate would NOT have to come up with the difference if the loan balance is higher than what the home can be sold for (fair market valued) |
*Terms and interest rate is determined by income, assets, credit score, ability to make payments and points.
** When costs are compared side-by-side the difference is the FHA Mortgage Insurance Premium. And the FHA MIP provides many benefits to senior homeowners who do a reverse mortgage.
Compared to Selling and Moving? Let’s take a look.
| Terms | Selling & Moving/Rent In Senior Housing | Reverse Mortgage |
| Retain Title/Own Home | No | Yes |
| Credit Score Requirements | Yes (rental properties look at credit and income to determine if you’ll be able to pay the rent or need to rely on government programs) | No |
| Monthly Payments Requirements | Yes, Rent. Rent in Assisted Living will range from $2,500 to $8,000/month depending on services. Additional services, i.e. home care, will be additional. | No |
| Realtor/Originator Fee | 4% to7% Realtor Fee. On a $200,000 home = $8,000 to $14,000. | Origination Fee is 2% on the 1st $200,000; 1% thereafter max of $6,000. On a $200,000 home = $4,000. |
| Third Party Fees/Other Fees | Yes | Yes; FHA Mortgage Insurance Premium |
| Non-recourse, there are is no personal liability to the borrower(s) or their estate | Not applicable | Yes, the estate would NOT have to come up with the difference if the loan balance is higher than what the home can be sold for (at fair market value) |
Where else can one access funds with these benefits for the cost of the FHA Mortgage Insurance Premium? To say the reverse mortgage costs are high compared to a conventional mortgage or to selling and moving is like comparing apples to oranges.
So I still ask, reverse mortgages are expensive? Compared to what?
© 2011 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648
This material my be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-sm
Related articles:
- A Reverse Mortgage or A Conventional Mortgage For Senior Homeowners? That Is The Question.
- Reverse Mortgage Closing Costs – High or Mythical?
- Do You Understand The Reverse Mortgage Closing Costs?
- How Do Reverse Mortgages Compare to Conventional Mortgages?
- You Originate Reverse Mortgages… What Do You Do To Deserve All That Money?
- A Reverse Mortgage Should Be A Last Resort… To What?
- The Misconceptions of Reverse Mortgages Abound… What Do You Know?
- Who Should You Believe About Reverse Mortgages?
- You Need To Know Reverse Mortgage Borrowers Are Highly Protected!
- I Want To Stay In My Home… Don’t Tell Me To Sell!
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- Seventeen Facts About Reverse Mortgages You May Not Know
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