BBB Marketplace Survival Guide
Whitney Quick

BBB Tips: Consider Costs, Conditions Carefully Before Taking Out a Reverse Mortgage

Posted Wednesday, August 12, 2020, at 8:30 AM


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    A timely article, given the repetitive hawkings from a very aged Magnum PI.

    Poked around the HUD / FHA websites to better understand a neighbor's plight after taking one of these out, and still complaining about coming up short.

    Essentially, my head hurt bad after reading through all the fine print, as well as the options.

    In short, came up with some generalities -

    1) only eligible to receive about half the current equity in the house, depending on age on application and interest rates at that time.

    2) interest rates run about 1.5% higher than advertised 30-year conventional mortgage rates - about 1% for the HECM premium, and the other 0.5% for the ongoing mortgage insurance premium.

    3) generally high loan origination fees, which include a 2% upfront mortgage insurance payment, although total origination fees are capped at $6000.

    4) because of the high degree of customization of each loan based on age, current interest rates, current equity in the house, methods of payouts chosen (lump sum, monthly payout for life, monthly payout for a fixed term, home equity (as you need it), etc) - challenging to understand the end result and financial impact.

    5) Concluded this is a loan, with the house used as security collateral, where interest is charged on all money received, with only a balloon repayment required at the end, which may indeed result in the transfer of deed to the house if the successors don't want to hand over the equivalent cash for the loan balance.

    In short and IMO, the reverse mortgage / home equity conversion mortgage (HECM) seems to be a measure of absolute last-resort, not quite the nothing but sunshine and roses scenario inferred by the TV guy. :-)

    -- Posted by fxpwt on Wed, Aug 12, 2020, at 8:36 PM