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Reverse mortgages just got cheaper

As retirees enter retirement with account balances that aren’t quite as high as they would like, more an more are considering reverse mortgages. Reverse mortgages are available to anyone over the age of 62 who owns their home outright or holds only a very small mortgage.

The majority of reverse mortgages are made through the Home Equity Conversion Mortgage (HECM) program and the amount that can be borrowed depends on the appraised value of the home, the interest rate in effect at the time and the age of the youngest homeowner. (Other things being equal, an older homeowner will be able to get a high monthly payout than a younger homeowner).

The maximum amount that can be received is $625,000. Money can be taken in three ways: as a lump sum, in installments or a "credit line" can be set up and money can be withdrawn as needed. With reverse mortgages, retirees can remain in their homes and they wont be forced out and there are no income or credit checks required.

Reverse mortgages have been around for a pretty long time and the reason they aren’t more popular is that the fees associated with them have typically been pretty high. Lenders add on a lot of charges and these charges include origination fees which can be as high as 2 percent of the first $200,000 borrowed and then 1 percent of the amount over $200,000. Borrowers are also usually on the hook for mortgage insurance premiums and possibly monthly service fees as well. All these expenses really add up.

However, things are now changing and reverse mortgages are now getting less expensive. For example, many lenders are now cutting the origination fee and the monthly service fees. That doesn’t mean reverse mortgages are now inexpensive — you should still expect to pay many thousands in fees to get a new mortgage in place — but if its been a while since you’ve looked into these mortgages, you might want to take another look.

But remember that fees are only the beginning of the story. There are still many factors to be considered. Usually, these products are most appropriate for people expecting to live in their homes for many years and all borrowers must understand that there may be no equity remaining in the house for possible heirs. Finally, be sure to seek out education on the pros and cons of these products before committing to anything. For more information on reverse mortgages, check out this recent New York Times article.

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