What do reverse mortgage originators do to earn their money?

Calculating reverse mortgage originator's timeOften stated, the reverse mortgage is expensive and the fee the originator makes is part of the reason. Originating reverse mortgages is not as easy as one, two, three but a very time consuming process whether one is a retail officer (works directly for the lender) or a broker (one who works with various lenders).  Note that brokers are often more involved in the process, not just taking an application and moving on to the next application.

My clients often make comments at the closing that they understand and appreciate all the work I did to get to the closing table.  To help you understand the work and time we, as reverse mortgage expert originators, put into originating and processing a reverse mortgage let me walk you through an outline and approximate time involved.  Note: While you may not read the outline word for word (yes, it’s long), you’ll at least have a good idea of the time involved for originating each reverse mortgage.  Make sure you go to the last five paragraphs for the conclusion.

  1. Take the phone call from one interested in a reverse mortgage.  Generally spend 30 to 60 minutes gathering information about the situation, why they are inquiring about the reverse mortgage, providing initial information, discussion options available, and getting information to run calculations to determine eligibility.
  2. We generally spend time on researching property values. This can be critical to determining the feasibility of completing a reverse mortgage if there is a significant mortgage balance outstanding and important even without debt payoff concerns just to give the homeowner the most accurate estimate of loan proceeds possible – 20 to 60 minutes.
  3. Enter information into computer program, run calculations, prepare informational folder – approximately 60 to 90 minutes.
  4. Drive 60+ minutes round trip to the prospect’s home for an initial educational meeting.
  5. Discuss their situation and educate them on the reverse mortgage, the various program options, i.e. adjustable rate vs fixed rate, monthly vs annual adjustable rate programs, cap on draw in 1st 12 months,  and possible other options – 1 to 3 hours.
    1. Leave a list of reverse mortgage counselors for the required FHA HUD insured Home Equity Conversion Mortgage (HECM) counseling.
  6. Generally there are numerous phone calls to answer additional questions.  These calls can be 15 minutes to an hour or more each call.
    1. Sometimes we talk with family members or have an additional 1 to 2 hours face-to-face with prospect and their family.
    2. If one is doing the HECM for Purchase, using the reverse mortgage to purchase a new home, we also meet with the real estate agent, building contractor, etc. – additional 1 to 2 hours with each along with numerous calls in between.
  7. Receive phone call that the prospect is ready to proceed with the loan.  Schedule application time and date – 10 to 30 minutes (longer if they have additional questions).
  8. Call prospect to gather information needed for application as well as which option they are choosing – 15 to 20 minutes.
  9. Enter complete information into computer program – 30 to 60 minutes.
  10. Prepare the full application package for signatures and a separate borrower set – 60+ minutes.
  11. Drive 60+ minutes round trip for the application.  Drive time can be 5 to 10 hours round trip if the client is outside the metro area.  (Some lenders will mail the application or use a notary however I believe that the face-to-face meeting provides better explanations of each of the forms one is signing.  Note that notaries, unless a licensed or registered mortgage originator, cannot answer any questions, they are there only to verify your identity and make sure you sign the application forms in the appropriate spots.)
  12. Spend 1 to 2 hours, sometimes longer to review information on application and get signatures.MN Reverse Mortgage Borrowers Signing Application
  13. If counseling wasn’t completed prior to the application, work with borrower to receive counseling certification with signatures of both the counselor and the borrower(s) which is needed prior to starting the processing of the loan – 15 to 30 minutes.
    1. Make phone calls to have the signed counseling certificate faxed – 15 minutes.  Or will drive to pick up certification – another 60+ minutes round trip plus 10 to 15 minutes with borrower.
    2. May need to contact counselor for corrections on address or correct names or Power of Attorneys – 15 to 30 minutes.
  14. Review file, making sure everything is collected and prepare for submitting for processing – 30+ minutes.
  15.  Start processing.  We are a reverse mortgage broker (one who works with more than one lender) and we process the loans in our office, we don’t send them off somewhere to another office or state to be processed.  While the processor is different than the originator, the originator of a broker is often involved in the facilitating the processing by working with the processor and the borrower through to the closing and funding, not just taking an application.
    1. Enter information into processing software program (one we have developed on our own) – Processor: 30 to 45 minutes.
    2. Request FHA Case Number – Processor: 10 minutes.
    3. Order Title Report – Processor: 10 minutes.
    4. Order appraisal from Appraisal Management Company – Processor: 10 to 15 minutes.
    5. Order Insurance Binder – Processor: 10 minutes.
    6. Pull Flood Certificate – Processor: 10 minutes.
    7. Pull Credit Report – Processor: 10 minutes.
    8. Pull other required documentation – Processor: 10 minutes each when necessary.
    9. Review Title Report when received – Processor and Originator: 15 to 30 minutes.
    10. Review appraisal when received – Processor and Originator: 30 minutes.
    11. Review Insurance Binder – Processor: 10 minutes.
    12. Review Flood Certificate – Processor: 10 minutes.
    13. Review Credit Report – Processor: 10 minutes.
    14. Request any changes if necessary – Processor: 10 minutes for each change that is necessary.Reverse Mortgage Borrower talking with MN Reverse Mortgage Loan Officer
    15. Phone calls with borrower for clarifications on any information that is on title, credit report, etc.   For example if a mortgage is on title that we didn’t know about, showing taxes weren’t paid, a judgment is on title or the credit report – Originator: 15 to 30 minutes each call; sometimes 3, 4 or more calls.
    16. When appraisal is received, enter new value, if repairs are required, etc. in software program for calculations – Originator: 15 to 30 minutes.
    17. Update processing software program with changes – Processor: 10 to 15 minutes.
    18. Call borrower to advise borrower of appraised value, required repairs if any, and any calculation changes – Originator: 15 to 30 minutes.
      1. Or up to several hours based on the appraised value, repairs, or other factors, the borrower decides a program change would be in their best interest (i.e., a change from fixed rate to adjustable rate), or contractor bids or additional inspections are needed for repairs.
    19. Prepare re-disclosure for borrower – Originator: 15 to 30 minutes.
      1. Or up to several hours or more if, based on the appraised value or other factors, the borrower decides a program change would be in their best interest (i.e., a change from fixed rate to adjustable rate).
    20. Mail re-disclosure to borrower – Originator: 10 to15 minutes.
    21. Review all documentation to make sure everything needed is in the file for underwriting – Processor: 20 to 30 minutes.
      1. Multiple follow up calls to the borrower may be necessary to remind them and/or advise them on missing, corrected or additional documents that are necessary (i.e., SS card shows maiden name, etc) – Originator: 10 to 20 minutes each call.
    22. Scan and submit file to underwriting – Processor: 15 minutes.
    23. Request final fees from title agent – Processor: 10 to minutes.
    24. Address any underwriting conditions by contacting title company, appraisal management company, borrower, or making other necessary changes – Processor: 30 minutes to several hours depending on the conditions.  Conditions are required so that HUD will insure the loan and the investors will provide the funding.
    25. Have borrower sign letterof commitment – required in MN to be signed and dated by borrower and can’t close for 7 days – Originator: 60+ minutes round trip to get borrower’s signature plus 10 to 15 minutes with borrower.  Can be done via fax or scanned and emailed if borrower has this capability.  If they live outside the metro area and don’t have capability to fax or scan and email the commitment will be done through the mail delaying the time for the closing (not what the borrowers want at this point).
    26. Gather, review and Submit changes/conditions to underwriter – Processor: 10 to 15 minutes.
    27. Discuss with borrower how they want their reverse mortgage funds and their availability for closing – Originator: 15 to 30 minutes.
    28. Schedule closing according to availability of title agent/signer (and possibly a notary), borrower and loan officer and lender’s closing department’s timing requirements, and possibly with family members and/or Power of Attorney (POA) – Processor and Originator: 30 to 40 minutes  each of the phone calls.
    29. Prepare closing document request to send to lender – Processor: 2+ hours.
    30. Receive closing documents, review that the numbers match those in our program; make sure title company’s and lenders numbers match- going back and forth between those involved – Processor: 2+ hours.
    31. Attend closing.  We believe in attending the closing with our borrowers to assist in explaining the closing documents.  We generally close at borrower’s home for their convenience or would drive to the title company’s office – Originator: 60+ minutes round trip drive time.   Drive time can be 5 to 10 hours round trip if the client is outside the metro area.
    32. Closing with borrower – 1 to 1 ½ hours.MN Reverse Mortgage Borrower Signing Closing Documents
    33. Follow up on funding conditions, i.e. missed signatures or documents,  if there are any (we rarely have any) – Processor: 30 to 60 minutes.
      1. If necessary, we may make another trip to the borrower’s home to get a signature on a document in order to keep on schedule for funding) – Originator: 60+ minutes round trip drive time.  If outside of the metro area we will assist borrower via phone and having sent over-night the necessary documentation – 60+ minutes.
    34. Keep borrower advised of funding status, i.e. when funds were wired to their bank and payments made for paying mortgages, taxes, etc. – Originator: 10 to 15 minutes per phone call, generally 2 calls.
    35. Once funded, send thank you letter – Originator and Processor: 15 minutes to prepare and mail.
  16. Answer questions from borrowers during the life the loan – generally 15 to 30 minutes each call.  We often talk with our borrowers once or twice a year.

What is described above is an ideal no-problem/issues loan. The majority of our loans can have multiple issues that increase our time investment significantly including POA, Conservatorships, Trusts, non-borrowing and non-occupying individuals on the title, private liens and a long list of property issues including manufactured homes, condos, rural properties, repairs, etc. These can result in additional huge time requirements on the originator’s and processor’s part.

We also continually market for new clients meeting with referral sources and reverse mortgage prospects (some of whom decide to wait or not do the reverse mortgage), as well as other marketing efforts.

A good loan originator will take time to meet with the prospects, educate them, their families and advisors about the various reverse mortgage programs and options.  They will also be familiar with the processing and assist with the processing as well as be available to answer questions even after the loan is closed.  Originators, processors, underwriters, lenders, title companies and their settlement agents, and all involved in the loan process need to be compensated for their time, experience, and expertise.

The originator does NOT receive the full fee collected.  The fee received by the reverse mortgage broker covers the originator’s salary, the processor’s salary, overhead for the business such as computers, office supplies, copiers, health insurance for employees, taxes, licensing, marketing expenses, etc.  Originating a loan is not charged by the hour but this gives an idea of the hours involved for the originating and processing reverse mortgages.

As we go through the application and process, my borrowers, recognize the time we put into helping them with their reverse mortgage and don’t question the fee we are paid. I hope this outline helps you also understand that it is a time consuming process and the reason the fees are what they are. And when broken down “all that money” is not really all that much compared to the time involved.

© 2015 Beth Paterson, Beth’s Reverse Mortgage Blog,651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-1a2


Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Are Reverse Mortgage Property Tax Defaults Really Due To The Reverse Mortgage? …They Are Not The Only Reason Seniors Lose Their Home

Reverse mortgages are not the reason for tax defaultsThere is a lot of talk about the issues of reverse mortgage defaults causing borrowers to go into foreclosure and lose their homes because of not paying their taxes and insurance… claiming that the tax defaults are a reason one should not do a reverse mortgage.  The media and so-called senior advocates are pushing this point hard.  Are you aware that anyone who doesn’t pay property taxes on one’s property can face foreclosure?

If one has a conventional mortgage and doesn’t pay their taxes, the lender will pay the taxes on behalf of their borrower and increase the homeowners mortgage payments to cover the taxes.  If they let their homeowners insurance drop, the lender will place “forced” insurance on the property and pass the costs along to the borrower.

Even if one doesn’t have a mortgage, a reverse or conventional, one can lose their home for not paying their taxes – the counties foreclose on them.  Here in Minnesota the county claims the property as a tax forfeiture.

Ann, a 65 year old woman called me inquiring about a reverse mortgage stating she owed over $20,000 in back taxes and was facing tax forfeiture in just a few short months.  Ann had no other debt and her home was worth more than $300,000.  Based on her situation, she wouldn’t qualify for a conventional or “forward” mortgage.  Someone had suggested the reverse mortgage a solution to her situation.

I explained the details of the reverse mortgage: A reverse mortgage is a loan with special terms for those 62 and older.  As an FHA insured loan HUD oversees the Home Equity Conversion Mortgage or HECM providing protections like no other financial option.  With the HECM there are no income or credit score qualifications* and no monthly payment requirements.  The home would remain hers with the title in her name.  And the reverse mortgage funds could pay off her tax debt and she could leave the remaining funds in a Line of Credit with a growth rate for future needs including paying her property taxes going forward.  Or if she chose she could receive monthly payments, a lump sum or a combination of these options.

The loan would be due and payable when the home was no longer her primary residence or on her 150th birthday.  If at the time the loan was due and payable and the home was sold for more than the loan balance she or her estate would receive the difference in funds.  Or if the loan balance was higher than what the home could be sold for, as a non-recourse loan she or her estate would not have to come up with the difference, the FHA Mortgage Insurance covers the difference to the lender.

In her situation she would have had a large line of credit that would allow her funds to pay her taxes and insurance going forward… and some other life necessities or a little extra here and there to maintain or improve the quality of her life.

There are many homeowners who lose their home for not paying their property taxes.  When one gets behind on their taxes, they also reduce their option of qualifying for a conventional mortgage, especially with the tighter credit and income qualifications.

And think about it, if one doesn’t have insurance on their home and there is a fire or a storm that destroys the home, the homeowner loses their home and they don’t have money to rebuild.

Another consideration regarding reverse mortgage defaults is they are minimal compared to conventional or “forward” mortgage default foreclosures.  I’m sure some of the forward foreclosures included seniors who had been sold a mortgage without consideration on whether they would be able to make payments in the future.  In fact I know of an 80+ year old woman who did a 30-year mortgage… what was the likelihood she would be able to make mortgage payments for 30 years?  A reverse mortgage would have been a better loan choice for her.

When the senior homeowners with forward mortgages have had “life happen” and they couldn’t make the payments, they also didn’t qualify for a reverse mortgage because they owed more than the reverse mortgage proceeds, they went into foreclosure.  (We often receive calls from seniors in this situation and have to say we can’t do the reverse mortgage for them.)  If these seniors had done the reverse mortgage initially instead of doing the forward mortgage, they would be benefitting from no mortgage payments and having funds to pay their taxes and insurance as well as for their other needs.Reverse Mortgages Make Positive Difference in Seniors' Lives

Reverse mortgages make a huge positive difference in the life of senior homeowners; the majority of reverse mortgage borrowers are satisfied with their reverse mortgage.  Reverse mortgages shouldn’t be discounted because a small percentage are in default.

When reverse mortgage borrowers haven’t paid their taxes the lenders/servicers work with the borrowers to find ways to help them including sending them to counselors who  work with borrowers to find a way to assist them address the issue.

Unfortunately, Ann’s brother had told her reverse mortgages are bad and she shouldn’t do one and she listened to him.   Consequently the county foreclosed on her.  She not only lost her home and a place to live, she lost the $280,000+ in equity.  Whereas a reverse mortgage could have saved her home from foreclosure and she would have been able to pay her taxes and remain in her home with funds for other needs or desires including paying her future taxes and insurance.

So you see, reverse mortgage tax defaults are really defaults on taxes with a reverse mortgage in place and are not the only reason seniors can lose their home – they happen with conventional or no mortgages at all as well.  The media and politicians should stop attacking the reverse mortgage industry as the bad guys and gals – counties across the country are foreclosing on seniors’ homes too.

*To address the issue of tax and insurance defaults, in the near future we anticipate financial assessments with the reverse mortgage to determine if the borrowers are able to pay property taxes and insurance into the future.

©2012 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-YU

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

What To Consider When Choosing Your Reverse Mortgage Originator

Reverse Mortgage Originator Explaining Documents to a MN BorrowerWhen you have decided to explore or to proceed with a reverse mortgage you want to make sure you are working with an originator you are comfortable and has the knowledge and experience to guide you through the process.  Originating the reverse mortgage takes patience, kindness, a “social worker” attitude and a teacher aptitude versus a sales approach.  There is a difference in originators with their expertise, knowledge and experience with reverse mortgages along with the customer service they provide.

To help ensure that you are working with an originator (also referred to as Loan Officer/Reverse Mortgage Specialist, Reverse Mortgage Advisor or Reverse Mortgage Consultant) who is experienced, knowledgeable and meets the industry’s standards, consider the following when choosing your reverse mortgage originator.  Yes, the list is long but knowing the answers to this list of questions will help support and protect you.

  • How much experience does the Reverse Mortgage Originator have with reverse mortgages – not just conventional mortgages as they are quite different?
    • Work with experienced reverse mortgage originators who specialize in reverse mortgages.  Ask how many years they have been originating and if/what training they have received.
  • How many reverse mortgage loans has the Reverse Mortgage Originator done?
    • Experienced loan officers have originated hundreds of reverse mortgage loans.  Ask how many they have originated, not just their company or lender, but them personally.
  • Does the mortgage company and Reverse Mortgage Originator have the required federal and state licensing?
    • Mortgage Brokers/Originators have completed federal and state education, testing and licensing requirements. FDIC Banks and Credit Unions are registered but have not completed the education, testing and licensing requirements.
    • Ask your originator to provide documentation that they personally are licensed and/or look them up at the National Mortgage Licensing System  – if the person you are talking with is not listed they are not licensed to originate loans.
      • Make sure they are licensed in the state you are located.  In Minnesota all individual mortgage loan officers (performing marketing, educating, originating functions) have to be licensed.  This includes completing the application – the originator should be guiding you through the application and explaining the documents you are signing, not just having a notary at the application as they are not approved to provide you information or explanations on the documents you are signing.
  • Who is the mortgage company’s lender sponsor?
  • Do they offer all reverse mortgage programs available for FHA’s HECM and when available, proprietary (private)?
    • Experienced originators should offer and be familiar with all the various programs available.
  • If you are in a manufactured home, log home or unique property, do they work with a lender who will accept these properties?
    • Many lenders no longer accept these properties but some do and as a broker, we, Reverse Mortgages SIDAC work with lenders who do accept these properties.
  • Do they assist you in determining which program is most suitable for your needs?
    • Experienced originators should discuss the various programs and help you to assess the program most suitable for your needs.  Originators should be showing you at least 3 if not 4 options.  Is the adjustable rate program better than the fixed rate program for your situation.  Are they discussing how you may be able reduce the upfront Mortgage Insurance Premium (MIP)?
  • Do they just try to “sell” the program to you or do they help you determine if the program is appropriate for your situation?
    • An originator should not pressure you or sell you a particular program, they should discuss the various programs and options and have YOUR best interests at heart, i.e. is an adjustable rate better than a fixed rate for your situation.
  • Will they meet with you face-to-face for an information session and the application?  Or do they just mail you the application package or send a notary to the application?
    • Because of the complexities of the program, originators should meet with you face-to-face to complete the application package.  These sessions normally take around 2 hours to review all the documentation and insure you understand what you are signing.  Don’t sign a package that is mailed to you or one where a notary is observing your signature – find an experienced originator who is local/in your state to work with you.
  • Do they disclose ALL information and identify ALL costs, explaining the program(s) and details and terms accurately and clearly so you understand them?
    • Originators should be willing to disclose and discuss all information regarding reverse mortgages in terms and a way so you understand them.  They should welcome your questions and be able to answer them to help ensure you have an understanding.
  • Do they know what costs are not allowed by FHA?
    • HUD regulates the fees and a mark-up of fees are not allowed – you should only be paying the actual cost of the service.  Your originator should know which fees are allowed by HUD and which aren’t.  They should fight for you if a title company is charging processing or “junk” fees.  (Many charge processing fees without the lender or originator addressing it with their title company.)  The cost of the settlement statement should reflect this actual amount.
  • Where are their loans processed?
    • Your loan should be processed in an office where they can provide a personal touch vs sending them across the country to a processing center.
  • How fast do they process their reverse mortgage loans?
    • Because the rates can change so quickly, processing (application to closing) should be able to be completed in 30 to 45 days under normal circumstances.  If additional documents are needed from you and you don’t provide them, the processing could take longer.
  • Who does the processing of the reverse mortgage loans?  Does the processor have experience processing reverse mortgages, not just conventional mortgages?  How much experience does the Reverse Mortgage Originator have with processing and solving the issues that arise during processing?
    • Because reverse mortgages are different than forward mortgages, the processor should have experience with reverse mortgages.  Originators should also have an understanding of the processing and assist in solving any issues that arise during the processing – they should not just be focused on getting the sale and then moving on.
  • What type of customer service do they provide?  Do they have testimonials and/or references?
    • Experienced originators should pride themselves on their customer service and be able to provide testimonials and references from their reverse mortgage clients – ask for them.
  • Will they (the Reverse Mortgage Originator) answer questions and continue to provide customer service once the loan is closed?
    • Originator’s customer service should include being available even after the loan is closed.  If they don’t have a lot of experience and/or they move from one lender to another you may not get your future questions answered.
  • Does the Reverse Mortgage Originator have the knowledge and experience on how the reverse mortgage and other Minnesota programs interact?  Programs such as Medical Assistance/Medicaid, Elder Waiver, home improvement loans from cities and counties.
    • Originators should be familiar with how the reverse mortgage interacts with other programs.  If they don’t find a different originator to originate your loan.  You may not need this now, but you may in the future and need assistance with this.
  • Does the Reverse Mortgage Originator have the knowledge and experience with the requirements of the reverse mortgage if there is a power of attorney, guardian or conservator, a bankruptcy, Trust or Life Estate?
    • Originators should have knowledge of what the requirements are or you may start your loan but it may not make it through underwriting or be insured by HUD if your loan doesn’t meet their requirements.
  • Do they or the companies work with (mortgage company,  lender, underwriter, servicer, etc.) offer financial or insurance products in addition to the reverse mortgage?  Are they trying to cross-sell (selling more than one product) during the origination of your reverse mortgage?  Will you be contacted and offered other services such as financial or insurance products by them or the companies they work with after the loan is closed?
    • Cross-selling is not allowed.  Originators should only specialize in reverse mortgages and not sell or encourage you to purchase other products.  You are not required to purchase annuities, insurance or financial products with your reverse mortgage proceeds.
  • Are you treated with respect and dignity?
    • You, of course should be treated with respect and dignity.  If you feel you are not, find a different originator.
  • Do they protect your privacy and confidentiality and not distribute personal financial information to any third party without permission from you?
    • To protect against identity theft you want to be assured that your information is private and kept confidential.  Ask what their policies and procedures are.
  • Do they encourage you to discuss the loan transaction with family and/or trusted advisors?
    • Originators should encourage you and welcome talking with your family and/or trusted advisors about your decision to do the reverse mortgage.  But respect you if you chose otherwise.
  • When completing the application do they leave you copies of what you have signed and copies of the sample closing documents?
    • At the time of application or within three days, originators are required to leave you copies of what you signed including the calculations and Good Faith Estimate, booklets, and samples of the closing documents.  If you do not receive these, request them, if you have problems receiving them, change to a different originator.
  • Do they provide a list of FHA counselors without steering you to a particular one?
    • HUD does not allow an originator to steer or be involved in your choosing or receiving counseling.  Minnesota law requires borrowers be counseled by a counselor located in Minnesota, they cannot choose any of the national counselor.
  • Are they familiar with the Minnesota state laws (or whichever state they are originating in)?
    • If an originator is originating in your state they should be familiar with the state’s laws, i.e. Minnesota has some particular laws that pertain to reverse mortgages – all originators are, unfortunately, not familiar with them.

Be cautious that you do not complete an application or give the originator the counseling certificate until you have made your final decision of the originator you are choosing.  Once an originator or lender has the counseling certificate they can obtain a FHA number and lock you into using them when they might not be your choice of originator or lender.

Be educated on reverse mortgages and work with an originator and lender who is experienced, knowledgeable, meets the industry’s requirements and fulfills the above list of expectations.

© 2009-2014 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-YR

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Be Cautious on Reverse Mortgages… And From Whom You Are Getting Your Reverse Mortgage Information

Proceed with Caution on A Reverse Mortgage & From who You Receive the InformationCautious is defined as showing or using caution; a warning or having alertness or taking care in a situation.  Therefore I feel you should be cautious of the food you are putting in your mouth, the medications you are taking, the safety of the products you purchase, the credit card you are applying for, how you are spending your money, answering the door when you weren’t expecting anyone, purchasing services from the person going door-to-door, the car you are purchasing, the home you are buying.  Should you be cautious of reverse mortgages?  Of course you should be cautious of reverse mortgages.  But you also need to be cautious of who you are getting your reverse mortgage information.

State Attorney Generals, politicians and other government agencies are issuing cautions on reverse mortgages.  Some of their advice is good, unfortunately, with many of these “warnings” the information is not accurate.  Their advice that one should get information and have an understanding the product and it’s pros and cons is good advice… just as you should for any product or service.  Unfortunately one government agency, the Consumer Financial Protections Bureau (CFBP) didn’t even talk with borrowers to write their report, therefore their report is not based on actual circumstances and discredits the quality of their information.

Senior advocacy groups also offer their cautions on reverse mortgages without having facts or experience with these unique products.  Their opinions include that reverse mortgages should be used as a last resort; should only be for older seniors; are for the cash poor, not for those planning for long-term care.  In my years of specializing in reverse mortgages (since 1999) I have found that these are misguided cautions.  Everyone’s situation is different, so assumptions should not be made and generalized for all situations.

The reverse mortgage should not necessarily be a last resort; can benefit those 62 as well as those 82 or 92; those needing a better cash flow because their home is their only asset or those who want to protect some of their assets for their long-term care planning purposes.  Rather than being an advocate, cautions of these sorts are really a disservice because they scare people rather than encourage them to get the facts and allow seniors to make their own decisions.

On a news talk show recently they were discussing reverse mortgages with a financial advisor who was being portrayed as a reverse mortgage expert.  As I listened to the interview I was astounded by the inaccurate information provided by this so-called “expert.”  Being financial advisors are not allowed to offer reverse mortgages, they are not the reverse mortgage specialists or the experts so they don’t have all the facts.  They have their areas of specialties, as reverse mortgage specialists, we have ours.  At the end of this interview an 800 number was provided with the statement that this was the HUD number to be call to get more information. I didn’t get the number written down so I don’t know whether this was a number to HUD or not.  What really made my jaw drop was the interviewer’s statement that one shouldn’t need to call the number because they just heard all the “facts” from “Mr. Financial Advisor.”  Unfortunately if they listened to those “facts” they would be very misled and not really understand the reverse mortgage or have the truths about them.

The FHA insured, HUD reverse mortgage, the Home Equity Conversion Mortgage or HECM, is the most common reverse mortgage in the country and the only one available in Minnesota.  One can obtain reverse mortgage information from HUD.  Note all those who offer reverse mortgages are not included on the FHA list of lenders.  In January 2011, HUD issued a Final Rule eliminating their approval process of loan correspondents or brokers although brokers can still participate through a sponsorship from a FHA approved sponsor.  For example, we, Reverse Mortgages SIDAC, are a broker, with a FHA licensed sponsor and meeting the federal and state licensing requirements through the National Mortgage Licensing System (NMLS), NMLS #173899.

While not on the FHA list, brokers offer many benefits including working with many different lenders, are local, often meeting with you face-to-face in your home.  Review the difference on my post, “Are You Confused on Whether to Use A Reverse Mortgage Broker, Bank or Lender.”

Proceed with A Reverse Mortgage After Getting Facts from A Reverse Mortgage SpecialistSo yes, take precautions with reverse mortgages, as you should with everything. But also take precautions on who or where your information is coming from.

Do you go to a plumber, politician or the media if you have health issues?  No you go to the doctor, and you go to the doctor who specializes in your specific condition.  The same is true with reverse mortgages, go to the person who specializes in reverse mortgages.

Get the facts from someone who specializes in them, has years of experience and only offers reverse mortgages (not other mortgages), one who works with various lenders, is local in your state not a “call-center” where they only talk with you over the phone.  A financial advisor can be part of the team to help you analyze your overall financial situation.

Keep in mind, the decision is yours on whether or not the reverse mortgage is right for your situation.  It’s not up to the Attorney Generals, politicians, seniors advocates, media, reverse mortgage counselor or originator/loan officer.

© 2012-2014 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-YP

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

A Reverse Mortgage Doesn’t Leave An Inheritance. But How Are You Going To Meet Mom’s Needs Today?

A reverse mortgage provides for Mom's needs today“I want to leave an inheritance for my kids.”  “I want my son to get my house.”  “The reverse mortgage will eat up my inheritance.”  “The reverse mortgage isn’t good for the kids.”  “The reverse mortgage should only be done with those who don’t have children.” These are statements that are often seen or heard when a reverse mortgage is mentioned.  My question is, do you, the children, have the money needed to cover the costs of mom or dad’s needs today if they don’t have the money and don’t do a reverse mortgage?

Let me share a story.  As I always do, I have a discussion on the needs and desires of one who is considering a Home Equity Conversion Mortgage (HECM) or a reverse mortgage.  In this one particular situation, the woman, Chris, was living off her Social Security income of about $600 a month.  She needed new teeth, new glasses, some new clothes, and her home needed some repairs.  She loved going to plays but couldn’t even afford the community plays for $5 to $10.  Doing a reverse mortgage would help Chris “live with more” so she completed the application.

A few days later she called to say she decided not to proceed. When I inquired why the change, she replied that her son didn’t want her to do it.  After some exploratory questions as to why, she said her son wanted her home after she had passed away so he could rent it out and make money.

How outrageous is this?  Was she really going to do without all the things she needed as basic necessities not to mention just being able to have some money for a few extra things to enjoy life while she’s still alive just so her son could make money off her house after she passed away?

While I was astounded by this response, I kept my tongue in check and calmly asked her if her son was going to provide the money she needed now or was she going to do without the glasses, teeth, clothes, and home repairs so her son could benefit after she passed away.  She said, “Of course not, he doesn’t have the money to help me.”

Is living from Social Security check to Social Security check just to get by and maybe doing without some of the things in life that give dignity such as having lunch with friends, getting one’s hair done, or having cable TV really a good option over a reverse mortgage?  Why should one be more concerned about leaving an inheritance than having their independence and control of their life and living comfortably?  Why do children think they deserve an inheritance rather than their parents being able to live comfortably, have security, independence, dignity and control of their lives?  Aren’t these the same things every one of us wants?  Why would you deny your parents?

Even if one’s children are able to help their parents today, do their parents really want to be dependent on their children?  What happens if “life happens” to their children, they lose their job, get sick, have to come up with money to pay for their kid’s college, etc. and they no longer have the funds to help their parents?  This can impact everyone!

What if one needs home care or has medical expenses?  Why should one do without needed care so they can leave an inheritance?  Why do children think they should receive an inheritance over their parents having the dignity of paying for their own care and expenses?

If one moves into senior housing, whether independent living, assisted living or skilled care, does one really think there will be funds left to leave for an inheritance?  Or will the children have to help pay for the senior housing?  Whether private pay or services paid by Medicaid or other government funds, there may not be an inheritance.

And whose money is it anyway?  Who should benefit from the use of funds or assets that the senior worked so hard for?  Shouldn’t the money and assets be used for whatever one’s parents need or want?

Many seniors say, “My kids are doing better than I am.”  This is often the case but even if this isn’t the case, why should one be concerned about leaving money after their gone?

A reverse mortgage is a loan against one’s home to allow seniors 62 and older to remain in their home with security, independence, dignity and control.  The most common, and only one available in Minnesota, is the FHA insured HECM.  The reverse mortgage offers many benefits including no monthly mortgage payment requirements, and no income or credit requirements to qualify for a low interest rate.  The loan is due and payable when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower.  As a non-recourse loan, if the loan balance is higher than what the home can be sold for at fair market value, the borrower or their estate are not responsible for the difference.  And the opposite is true too, if the loan balance is lower than what the home is sold for, the borrower or their estate receives the difference.

The borrower remains the owner of the home with the title staying in the name of the borrower(s).  In addition, the reverse mortgage has many protections, likely more than any other financial product or service.  To learn what these are read, “You Need To Know Reverse Mortgage Borrowers Are Highly Protected.”

A reverse mortgage provides security, independence, dignity and controlI’m happy to say Chris did proceed with her reverse mortgage.  And for the last six years I’ve received at least one call, sometimes a couple calls, a year saying she’s so relieved to have the money to meet her needs.  Besides the initial needs, she has had funds to fix her car when it needed some repairs, to cover some medical expenses and she had funds to take a trip to attend a family wedding.  And yes, she’s even enjoying the community plays every now and then.

Once Chris passes away her son will have the opportunity to keep the home by obtaining a conventional mortgage to pay off the reverse mortgage.  If he’s renting the property out, the rent payments he will be receiving will cover the mortgage payment – he could still make money if priced accordingly.  In the meantime Chris is remaining in her home with the security, independence, dignity and control she deserves and enjoying her life.

So what do you think is better?  Doing without today just so a child can have an inheritance or the senior being able to fulfill one’s needs and wants while they are alive?

© 2012 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-yv

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Reverse Mortgages Receive Some Good PR Coverage

Couple Getting Reverse Mortgage InfoWhile the media often feeds into the myths and misconceptions about reverse mortgages, the past two weeks there were two pieces that provided accurate and good information about this finance option for seniors.

First was a post in the New York Times on March15th titled, “More Homeowners Seek Reverse Mortgages At Earlier Age”  http://bucks.blogs.nytimes.com/2012/03/15/more-homeowners-seek-reverse-mortgages-at-earlier-age/

And on March 21, NBC Today Money 911 panelists provided a good answer to a daughter who thinks she should get an inheritance rather than her mother having done the reverse mortgage.  http://www.finishrich.com/blog/nbcs-today-show-money-911-march-21-2012/

The reverse mortgage provides funds for the senior’s needs and wants.  It helps them have money for their security, independence, dignity and control… no matter what their age.

It’s good to see the media catching on and providing facts for a change.

© 2012 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-xX

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Giving Thanks Because of Our Reverse Mortgage Customers

Giving Thanks Because of Our Reverse Mortgage Borrowers (c) 2008 Beth PatersonMy reverse mortgage borrowers often call to say “Thank you!” for helping them obtain their reverse mortgage.  They proceed to tell me what a difference it has made in their lives as well as for their families.  I always appreciate hearing from them as well as hearing their stories.

I also receive comments and notes of appreciation from others who work with seniors, my referral sources, the vendors who we need to do a reverse mortgage and operate our business, and those in my networks.

For me it goes beyond receiving the thank you’s from others.  I too have to say “Thank you!”  Thank you to my reverse mortgage borrowers and all I work with for the opportunity I have to serve.  I am rewarded to be able to assist in making a difference in the lives of seniors.  I  recognize that it is because of you I have this opportunity to serve and I feel blessed to be able to do so.

Many years ago I found the following poem on a restaurant place mat.  I don’t know who wrote it but I did copy it down and have it hanging on my office wall… a wonderful reminder.

Because the Customer

Because the customer has a need,
we have a job to do.

Because the customer has a choice,
we must be the better choice.

Because the customer has sensibilities,
we must be considerate.

Because the customer has urgency,
we must be quick.

Because the customer is unique,
we must be flexible

Because the customer has high expectations,
we must excel.

Because the customer has influence,
we have the hope of more customers.

Because of the customer,
we exist!

Thank you to my reverse mortgage borrowers, my referral sources, my vendors, my networks and all who help make a difference in the lives of seniors.  It is because of YOU I exist and am so rewarded.

May you find reasons to give thanks for the blessings in your lives this Thanksgiving day and every day.

© 2011 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-wo

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Are you afraid to do a reverse mortgage? Twelve Reasons You Shouldn’t Be.

Twelve Reasons You Should  Not To Be Afraid To Do A Reverse MortgageDoes what you’ve heard about reverse mortgages make you afraid of them?  Has your fear kept you from getting the facts to see if one might benefit you?

A reverse mortgage is a mortgage with special terms for seniors 62 and older.  The most popular, and only one available in Minnesota, a Home Equity Conversion Mortgage or HECM, is insured by HUD.  Let’s look at twelve reasons you shouldn’t be afraid of reverse mortgages.

  1. Reverse mortgages are highly protected – One of the protections includes that borrowers receive counseling from a HUD trained and approved third-party counselor.  Others include prohibiting cross-selling, disclosures and implementing requirements that limit scams and fraud.
  2. No monthly payments required – Your cash flow improves because you don’t have to make a monthly mortgage payment.   Instead of making monthly mortgage payments, the reverse mortgage is due when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower.  And with no monthly mortgage payments required, the risk of foreclosure is reduced.
  3. A variety of program options are available – The HECM Standard, HECM Saver and Home Purchase Programs are available with a fixed rate and adjustable rate options.  This gives you options to find one that is right for your situation.
  4. The interest rate is not determined by your income and credit score – The interest rate is based on the program chosen, no matter what one’s income or credit score is.  With a conventional mortgage, one’s credit score, income and assets will impact the interest rate of their loan – with a fixed income the interest rate is likely to be higher if one even qualifies for a conventional mortgage.
  5. Funds are guaranteed to be available during the term of the loan – As long as one abides by the terms of the loan, the funds are guaranteed to be available.  Borrowers are responsible to pay property taxes, insurance and maintain the home and if applicable pay home owner association fees.
  6. Flexibility on how funds are received – Funds are available to borrowers in a line of credit (has a growth rate), monthly payments (structured to your needs), lump sum or a combination of these.
  7. No limitations on how the funds can be used – One can use the funds received from the reverse mortgage however they choose – there are no restrictions.  The reverse mortgage is like any other mortgage where the borrower is using the equity of their home to meet their needs and desires now.
  8. The title stays in your name – the bank does NOT own your home, you continue to own the home.
  9. Closing costs are comparable to conventional loans – as with any mortgage there are closing costs.  While often said to be expensive, actually the reverse mortgage closing costs compare to those of a conventional loan.
  10. Fees charged are regulated by HUD – HUD only allows the necessary fees which are standard and customary – no mark up and “junk” fees are allowed.
  11. Reverse mortgages are non-recourse – This means if the loan balance is higher than what the home can be sold for, the borrower or their estate does not have to come up with the difference.  If the home is sold for more than the loan balance, the difference goes to the borrower or their heirs.
  12. Social Security and Medicare are not Impacted – One can still receive Social Security and Medicare with a reverse mortgage.  Medicaid may also be received under ceratin circumstances.  The reverse mortgage is a loan and the proceeds are not considered income.

Face your fear and get the facts about reverse mortgages and see if one may be right for your situation.  You may find that a reverse mortgage could make your life easier and provide you cash for your needs and desires.

© 2011 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-w7

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

“Our Reverse Mortgage Is Great. Gives Us Some Elbow Room.” And More Testimonies by Reverse Mortgage Borrowers

"Our Reverse Mortgage Is Great."While some people will say they have heard bad things about reverse mortgages I haven’t been able to get the real definition of “bad” or the reasons behind these statements.  However, actual reverse mortgage borrowers have lots of good things to say about their reverse mortgage.   Let me share some of them here.

“The reverse mortgage has allowed me to be able to breathe again and alleviate $tress” S.R.

“My reverse mortgage gives me financial security due to my fixed income.”

“It was a good experience.  The extra money each month is wonderful.” D.M.

“Since my cash assets have been spent down over twenty years of retirement, it became pertinent that my $750 mortgage payment needed to be ended.  I got this far in life seventy eighty years, without a monthly pension.  Now I have funds to supplement my Social Security Income.” D.W

“It’s great not to have to make mortgage payments.” M.L.

“I did the reverse mortgage to have extra money every month for expenses.  It gives me a little more financial freedom.” J.F..

“After retiring I found that my income was too little for the active life I was used to, with trips to family and a modest vacation each year.  But bills were piling up and I needed a real solution to stay in my home. I have my dignity and security back again.”  E.B.

My reverse mortgage has helped me...“The reverse mortgage allows me to have more means to meet future needs.  Having it has taken some of the fear away that I had for the future” C.G.

“I did the reverse mortgage to pay medical bills, credit cards and other debts.  It has made my life less stressful.” C.J.

“The reverse mortgage has allowed me to stay in my home with comfort to do things with my family.” J.T.

“With joy and delight I have felt hope and even vision anew in knowing that this home belongs to me. It comes with a challenge for me to realize that I am accountable in using these funds to achieve goals otherwise not possible.” B.L.M.

“Affords me the ability to retire and make ends meet.” S.G.

“The Reverse Mortgage helps out a great deal and solves many problems.”  C.C.

“As a senior citizen, I had been having some concerns with my finances.  Being on a limited income made much needed household repairs and property tax payments very difficult to meet.  I was going to have to make a choice soon about whether to continue to live in my house, or move on to an apartment.  The costs of continuing to live in my home were getting beyond my means, but I wasn’t ready to leave the home that I had raised my children in.  I decided t use the equity in my house to make life easier and meet the financial obligations that I had.” S.M.

"Our Reverse Mortgage Allows Us To Travel To Florida Every Year."“We can now continue to travel to Florida every winter.”  L.C.

“A reverse mortgage means I’ll have a place to live even in case of serious illness.”  D.B.

“It helps me keep up with bills I cannot cover with my limited income.  It also allowed me to remodel my home to improve it’s value and be more comfortable.  I greatly appreciate it.”  R.D.

“It is really great not to have to be concerned about where the money will come from for my long term care insurance policy payment and emergency repairs.  It has relieved us of a great deal of stress and makes grocery shopping a lot easier too.”  M.S.

“After six years of non-payment of property taxes, nearly four years of confession of judgement, and the home I had lived in for nearly 69 years within weeks of tax forfeiture, the Reverse Mortgage lender Beth Paterson, I worked with came to the rescue with a Reverse Mortgage.  The property taxes are now current for the first time in a decade, and I have a line of credit of approximately $100,000.”  R.W.J.

“The only way we could comfortably stay in our home of 42 years” S.H.Celebrating having a revese mortgage

“Once we realized that we could only relieve the stress on us by contracting 24-hour nursing care for grandma, a reverse mortgage was the only way to do it.” L.T.

“I didn’t have money to keep up with my living expenses so I did a reverse mortgage.  I paid some bills and my credit cards and have some additional funds for future needs.” J.D.

“The relief I feel from not having to make a mortgage payment each month is so great!  Now that my credit card is paid off, I will only need occasional one-time draws from my Line of Credit. To continue living in my home and travel and pursue some hobbies.” E.B.

Keep these testimonies in mind and share them when you hear reverse mortgages are “bad.”  As you can tell, actual borrowers think they are great!

© 2011-2015 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-ut

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Comparing Reverse Mortgage Closing Costs To A Conventional Mortgage – You’ll Be Surprised They Are Not That Different

Compare Closing Costs for Refinancing Your Home - A Reverse or Conventional MortgageIt seems like every article, report or someone you talk with states the reverse mortgage  closing costs are high.  Have you looked at closing costs on a conventional home mortgage?

As with a conventional home mortgage (called a “forward” by HUD), the closing costs for reverse mortgages may vary depending on the home value and the complexity of the loan.  Let’s compare the costs side-by-side for a Home Equity Conversion Mortgage  or HECM and a conventional/forward mortgage.

The third party and recording fees are standard for any loan.  However, with the reverse mortgage HUD regulates the fees and requires that only the actual cost may be charged to the borrower, they do not allow mark ups such as processing or servicing fees.  Look at an estimated comparison based on a Minnesota home valued at $200,000:

Third Party Fees Reverse FHA Forward Forward FHA
Appraisal $450 $400 $450
Credit Report $20 $20 $20
Flood Certification $16.50 $16.50 $16.50
Courier Fee* $25 $55 $25
Escrow, Settlement, or Closing $250 $250 $250
Abstract or Title Search $100 $100 $100
Title Exam $100 $100 $100
Document Preparation $100 $100 $100
Title Insurance $475 $475 $475
Endorsements $100 $100
Recording Fees $92 $46 $92
County/Mortgage Registration Tax $323 $480 $480
Plat Drawing $60 $60 $60
Name Search $30 $30 $30
Special Assessment Search $30 $30 $30
Counseling Fee $125 N/A N/A
TOTAL THIRD PARTY FEES $2,196.50 $2,262.50** $2,328.50

* Courier Fee is for sending a payoff on a current mortgage to the mortgage holder.

** These fees do not include all mark ups/processing fees so these may be higher when mark ups/processing fees are included.

Now let’s compare the Lender Fees:

FHA’s Mortgage Insurance Premium (MIP) is paid directly to FHA.  With the FHA HECM Standard this is 2% of the home value and 2 1/4% for a forward.  The FHA HECM Saver has a reduced MIP.  The advantages with FHA insuring the reverse mortgage include:

  • Guaranteeing the funds are available for you.
  • Guaranteeing the lender against default or shortfalls which means the interest rates are lower (currently under 3% on the HECM Standard Adjustable Rate) compared to other mortgages.
  • Providing a line of credit growth rate (available only with reverse mortgages).
  • Ensuring as a reverse mortgage it is a non-recourse (no personal liability) loan.

The origination fee is what the originating lender receives to cover the loan officer’s salary, overhead to run the business, i.e. staff salaries, administration costs, computers, electricity, office supplies, marketing expense, gas mileage, health insurance of employees, etc..  The origination fee also includes the processing and underwriting costs which are generally separate and charged to the borrower on forward loans.  HUD regulates the reverse mortgage origination fee to be 2% of the 1st $200,000; 1% thereafter with a cap of $6,000.  With a minimum of $2,500.

The reverse mortgage fees are based on the full home value because over time borrowers can access more than the home value at the time of origination.

An estimate based on a $200,000 home value:

Origination/Points $4,000 $2,000* $2,000*
MIP $4,000 $0 $3.500
Underwriting/Processing $0 $700 $700
SUBTOTAL LENDER FEES $8,000 $2,700 $6,200
Backend fee** $0 $2,000 $2,000
TOTAL LENDER FEES $8,000 $4,700 $8,200
Prepaid Interest*** N/A ++ ++

*Typical points on Forward loans are 0-4%; this example is based on $100,000 loan at 2% points.
** Forward loans often have a 1% back-end fee.
*** Number of points are directly related to interest rate charged; the more points paid the lower the interest rate; the lower points paid, the higher interest rate.

$10,196.5 $6,952.50 $10,528.50

Note:  THE DIFFERENCE IS BASICALLY THE FHA MORTGAGE PREMIUM!  Refer to above comments on the benefits of FHA insuring the loan.

Because the majority of conventional loans being done now are FHA insured, the reverse mortgage is actually less expensive.

The fees associated with the reverse mortgage are fully financed as part of the loan with no out of pocket expenses other than the FHA appraisal.  (As of 2010 Appraisal Management Companies must be used to order and process the appraisal.  This fee is required to be paid for by borrower up front or “out of pocket.”)  All of the fees must be disclosed on the Good Faith Estimate (GFE).

Keep in mind that there has to be a cost involved because everyone in the transaction needs to be paid for there services.  If the costs on a mortgage aren’t paid up-front then they’ll be paid over time with a higher interest.

When considering whether to do a forward mortgage or a reverse mortgage you must consider if you can even qualify for a forward mortgage; then if you can make the payments over time.  For example, what happens if “life happens,” could you continue making those payments or would you be facing foreclosure?

You also need to consider that if you do a forward mortgage now (if you even qualify), you’ll be paying the closings costs on that loan and then when you need more funds in the future and you refinance you’ll be paying the closings costs again.  These together can equal or exceed the total of the closing costs on the reverse mortgage.

Whereas with the reverse mortgage you pay the closing costs upfront and then without paying closing costs again you have access to more funds through your life as long as you are living in the home as your primary residence.  The additional funds would be either through monthly payments, a line of credit if that is the type of loan you have chosen.

In the big picture the cost of the reverse mortgage is less than a forward mortgage over time because the interest rate is lower on the reverse mortgage.  Therefore typically it doesn’t take too long for a forward mortgage to make up and then exceed what difference there is in closing costs of the reverse mortgage.

Now that we’ve compared the costs side-by-side, are you surprised that they are comparable to a conventional loan?

Article updated May 2012

© 2011-2012 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-t4

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.