What you need to know about reverse mortgages
15.12.2010 00:01
What you need to know about reverse mortgages
By George Mannes, senior editorDecember 9, 2010: 5:39 AM ET1. These loans are now cheaper to take out
Thanks to new federal rules, reverse mortgages don't have to sting as much at the outset. Previously these loans -- which let owners 62 or older borrow against their home and don't have to be paid back until the owner moves or dies -- always carried high upfront fees.
A new option, called a HECM Saver, cuts the initial insurance premium -- one of the biggest costs -- from 2% to 0.01% of your home's value. On a $400,000 home, that means paying $40 instead of $8,000.
Another welcome change: more thorough mandatory counseling for potential borrowers, which is designed to make sure you really need a reverse mortgage, understand it, and can afford to stay in your home even after taking out the loan.
2. Competition is heading upBanks are also cutting deals on fees, which can add up. The traditional reverse mortgage, called HECM Standard, still carries that 2% upfront premium. On all types of these loans, origination fees can hit $6,000. And you're on the hook for closing costs, including an appraisal and title insurance.
But today some lenders will pay more than half of the initial premium and waive origination fees, says John K. Lunde of analytics firm Reverse Market Insight. Start your shopping at the lender directory at .
3. Lower costs make the loans more versatileThe new fee structure could make reverse mortgages appealing to far more homeowners. Up to now the high upfront fees have turned off most seniors the majority of borrowers use the proceeds to pay off a regular mortgage.
The HECM Saver, says Barbara Stucki of the National Council on Aging, "puts conventional wisdom on its head." For example, reverse mortgages let you opt for a line of credit. With no credit check needed and potentially lower fees than on a HELOC, the loan could be the best way to set up an emergency fund.
4. But shopping is even more complicatedPicking the right loan remains tricky. Do you want a lump sum (with a variable or fixed rate?) or the variable-rate credit line or monthly payment options?
The new HECM Saver adds another wrinkle: The amount you can borrow a function of your age and your home's value is lower than it is with a HECM Standard. A 65-year-old in a paid-off $300,000 Illinois home could net $182,000 with a traditional loan but only $146,000 with a HECM Saver, according to MetLife Bank. To see your options, visit .
5. You (or your kids) will still pay a high price somedayYou may not feel a cash pinch now, but someone will later. No matter what kind of reverse mortgage you take out, you'll be charged not just interest but also a 1.25% annual insurance premium on the outstanding loan balance (up from 0.5%).
You don't have to pay interest and premiums during the life of the loan (you are still responsible for taxes, homeowners insurance, and maintenance, though). Instead, the bill comes due when your house is sold. So your heirs will collect some cash only if the sales price is higher than the loan balance and total lifetime fees.
#cnnfb_connect {background-color:#f5f5f5;width:auto;height:auto;padding:10px;clear:both;} Right Now
Fortune's Sue Callaway says the Leaf is a smooth ride, but a lack of compatible public charging stations may give drivers range anxiety. Netflix, Google and Facebook have let private data loose -- and the results can be devastating. Total sales in November rise 0.8% , topping economists' estimates. NRF lifts its holiday sales forcast to 3.3%.
| Overnight Avg Rate | Latest | Change | Last Week |
|---|---|---|---|
| 30 yr fixed | 4.97% | 4.67% | |
| 15 yr fixed | 4.26% | 4.04% | |
| 5/1 ARM | 3.59% | 3.40% | |
| 30 yr refi | 4.85% | 4.55% | |
| 15 yr refi | 4.12% | 3.88% |
Enter Zip code:
Select a product: AutoHomeLifeLong-Term CareHealth
Insurance news and resources from BankRate
by Bankrate.com View rates in your area
Find personalized rates:Card typeCredit typeCard issuer
Today's featured rates:
- Find Homes for sale
- City, state, or zip
- Price rangeMin$10,000$20,000$30,000$50,000$100,000$130,000$150,000$200,000$250,000$300,000$350,000$400,000$450,000$500,000$550,000$600,000$650,000$700,000$750,000$800,000$850,000$900,000$950,000$1M$1.1M$1.2M$1.25M$1.4M$1.5M$1.6M$1.7M$1.75M$1.8M$1.9M$2M$2.25M$2.5M$2.75M$3M$3.5M$4M$5M$10M$20Mto$10,000$20,000$30,000$50,000$100,000$130,000$150,000$200,000$250,000$300,000$350,000$400,000$450,000$500,000$550,000$600,000$650,000$700,000$750,000$800,000$850,000$900,000$950,000$1M$1.1M$1.2M$1.25M$1.4M$1.5M$1.6M$1.7M$1.75M$1.8M$1.9M$2M$2.25M$2.5M$2.75M$3M$3.5M$4M$5M$10M$20MMax
- Property TypeAny typeSingle-Family HomeCondoTownhomeCoopApartmentLoftTICApt/Condo/TwnhmMobile/ManufacturedFarm/RanchLot/LandMulti-Family HomeIncome/InvestmentHouseboatUnspecified
- Find a home in: | | |
- | | |
| Markets | Last | Change | % Change |
|---|---|---|---|
| 11,476.20 | 47.64 | 0.42% | |
| 2,626.75 | 1.84 | 0.07% | |
| 1,241.34 | 0.88 | 0.07% | |
| 3.45 | 0.17 | 5.24% | |
| 1.34 | -0.00 | -0.09% |
| Company | Price | Change | % Change |
|---|---|---|---|
| 4.68 | -0.12 | -2.60% | |
| 6.27 | -0.39 | -5.82% | |
| 12.37 | -0.17 | -1.36% | |
| 17.64 | 0.02 | 0.11% | |
| 35.39 | -6.31 | -15.13% |
Sections
Apple's stock keeps climbing and several money managers say shares, despite a more than 50% rise in 2010, are still a bargain heading into 2011. | The central bank reports that the economy is still on a growth path, but leaves controversial quantitative easing policy in place. | Netflix, Google and Facebook have let private data loose -- and the results can be devastating. | 'Pay czar' Kenneth Feinberg announces that claimants damaged by the BP oil spill in the Gulf Coast can get paid quickly, so long as they forfeit litigation. | Solar, wind, and other green stocks got hammered in the downturn. Now might be a great time to buy. |
Please create a screen name to access this feature.
Screen name (Select one with 3-12 characters; Numbers and letters only)
Forgot password
Enter your e-mail address below and we will send you an e-mail with a link and code to reset your password.
Password selection
Reset code
New password
Log in & let's get started!
Password
Remember me for two weeksNot a member yet?
Sign up or
Screen name
Select one with 3-12 characters;Numbers and letters only
You will receive an e-mail to validate your account
Password
Make it 6-10 characters, no spacesType what you see in the grey box
If you can't read this,Yes, I would like to receive occasional CNNMoney member updates about new features and special offers.
CNNMoney will use the information you submit in a manner consistent with our . By clicking on "sign up" you agree with and and consent to the collection, storage and use of this information in the U.S. subject to U.S. laws and regulations. ()
For our international users, please be aware that the information you submit when registering for our services is collected in the United States of America. In addition to being subject to our Privacy Policy, the collection, storage, and use of your data will be subject to U.S. laws and regulations, which may be different from the laws and regulations of your home country. By registering for this service, you are consenting to this collection, storage, and use.
We're Sorry!
This service is temporarily unavailable. Please try again soon.
Thanks!
Please check your e-mail and click the link to confirm your membership. Then, you'll be ready to participate in all activities and conversations on our site.
Add comment