Blog content updated on 11/11/2021
Concerned about cost? A Home Equity Conversion Mortgage (HECM) is more affordable than you think.
If you’re age 62 or older and your house is one of your largest assets, a HECM (commonly known as a reverse mortgage) could be the missing piece to a retirement plan that helps you meet your financial goals—and live the life you imagined.
An untapped financial resource for many retirees.
For many of today’s older adults, their largest retirement asset is indeed their home. In fact, according to the National Reverse Mortgage Lenders Association, total home equity for America’s homeowners age 62 and older reached a record $9.23 trillion during the fourth quarter of 2020. The average amount of home equity for senior homeowners age 65+ is $143,500.1
Sadly, many simply disregard home equity as part of their overall retirement plan. As a result, they miss out on an important source of retirement funding that could help improve their cash flow—and avoid depleting their savings and invested assets.
A closer look at the costs associated with a HECM.
Part of the reason so many seniors ignore this useful option may be that there are a number of common misconceptions about the program—one of which, is that it’s way too expensive as compared to other financial options. However, in many cases, it’s more affordable than you may think.
Mortgage loan origination costs and interest rates are comparable to traditional mortgages. There will be FHA insurance costs that some forward mortgages don’t require, but the benefits help outweigh this cost. Lender closing costs and fees can be financed into the loan—this reduces the net amount available to you somewhat—but the fact is, reverse mortgages don’t require large out-of-pocket expenses.
The costs associated with a reverse mortgage generally fall into four categories:
Origination Fee: This is charged by the reverse mortgage lender for processing the loan. A lender can charge $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000, whichever is greater. HECM origination fees are capped at $6,000.
Mortgage Insurance Cost: Mortgage insurance costs are unique to the FHA insured loan products. HUD guidelines require that all HECM borrowers purchase reverse mortgage insurance, which gives you the important non-recourse protections.
Third-Party Closing Costs: This represents a number of necessary services, and most are similar to the closing costs of a traditional mortgage. These can include home appraisal costs, credit checks, and any costs related to title insurance. There is also a fee associated with the FHA-mandated counseling session, which typically runs anywhere from $125 to $200—but is critical to ensure that you understand the program and your responsibilities, and that the loan is a good option for you.
Servicing Fees: Lenders or their agents perform services over the life of the loan, like sending account statements, disbursing loan proceeds, and making sure that you keep up with loan requirements, such as paying real estate taxes and insurance premiums. This is a monthly fee that runs about $30-$35, depending on the terms of the loan. At closing, the lender sets aside the servicing fee and deducts it from your available funds. Each month, the servicing fee is added to your loan balance, or it can be included in the interest rate.
Many of these fees can be financed from the proceeds of the reverse mortgage loan itself, and repaid later with interest. And often, there are additional lender credits available to reduce these costs. That’s why it’s important for you to shop around with different lenders to help you find the best offer.
Maximizing your proceeds with a HECM loan.
With today’s low interest rates, strong home values, and special Longbridge Financial pricing, now is a particularly good time to take a look at home equity options. It’s a great opportunity to get the most out of a reverse mortgage to help increase your cashflow—and decrease the stress of financial worries in retirement.
To learn more about reverse mortgages, talk to the experts at Longbridge at 855-523-4326—or fill out the form on this page for a free info kit.