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Are HECM Reverse Mortgages Costly

 

Are HECM Reverse Mortgages Costly?

 

DID YOU KNOW?

All borrowers, POA’s, Guardians and Conservators are required to complete a counseling session with an independent, third party counselor approved by HUD.

In this article we will answer the question…

Are HECM Reverse Mortgages Costly?

That is a great question and is likely to be one of the toughest questions to answer. Regardless, it will be answered. However, it would be necessary to complete the question before answering it because it cannot be said either it will be costly or not for the homeowner.

It will be better to reframe the question to something like... Are HECM Reverse Mortgages Costly? - Compared to What?” 

Can we compare it to Long-term Care Insurance? Yes. Can it be considered as insurance against home value falls? Yes. Can it generate revenue? Yes, but it is a lot more than that. It is exceptional. Other financial tools cannot compare to it. Let us not consider that for now; the real question is “as a MORTGAGE, is it costly?” To give an accurate response, the following will be needed:

  1. By how much will the home value rise?
  2. How long will the homeowner retain the HECM?
  3. How much will the homeowner pull out now and in the future?

Are Reverse Mortgages and HECM Costly?Let us consider why #1 matters. How does the home value appreciation affect how costly a HECM is? It matters because if the home value rises slowly, or not, or even falls, the probability that the non-recourse feature will protect the homeowner. When the value of the home is lower than the loan balance, the homeowner will not be answerable for the extra interest and mortgage insurance that amasses above the value of the home. In other words, a HECM can be very CHEAP if the home’s value does not rise.

 

DID YOU KNOW?

All Reverse Mortgage Borrowers must attend a counseling session via phone or in person. Brokers and Lenders are NOT allowed to steer a borrower to a particular counseling agency.

Here is an ILLUSTRATION of  the costs you'll have to pay for a reverse mortgage?

The value of Mark’s home 10 years ago was $200,000 when he got Reverse Mortgage. He drew $120,000 over those years. Within the period, the loan balance increased to $200,000, but his home value fell to $120,000. If Mark sold the home now at present market value, the amount he had borrowed and repaid would be $120,000 due to non-recourse feature.

Compare Reverse Mortgage Rates, Costs, and Fees with Us First

In essence, his actual interest rate would have been 0%. He borrowed and repaid the same amount. This is very cheap for Mark but quite unfortunate for the FHA that holds the insurance for the loan.

HECM Reverse Mortgages Costly option for retirementLet us consider #2. A homeowner holding a HECM for a short time will consider the loan to be very COSTLY. Imagine adding $5,000 in closing costs to the loan balance, the loan to be held for just one year. That can be considered as an annual cost of $5,000 without adding the mortgage insurance accruals and interest. Meanwhile, spreading the same closing costs over 20 years, it would be an annual cost of $250 per year. Longer terms make the mortgage very cheap when considered as a Total Annual Loan Cost.

#3 asks the question, “How much will the homeowner draw from the home equity now and in the future?” This is important because they are not expected to draw much at the moment. Some lenders demand a minimum loan balance of $50 or $100 for the account to remain active. However, the borrower may want to borrow sizeable amount later when the line of credit has increased substantially. Therefore, are the annual costs of this loan costly? 6% interest on a balance of $100 equals $6 annually. Consequently, it would be a very CHEAP mortgage when counting costs.

Find Out More About Reverse Mortgage Costs Chick Here!

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REVIEWS
5(based on 1 reviews)
  • Looks like you put a lot of work in here. Great information and very helpfull Brandon 07/26/2016

Call us today at 424 225 2167 for help. One of our mortgage professionals will help you get the best possible Reverse Mortgage loan solution for your situation. We’ll be with you every step of the process and not hand you off to someone else. States we lend in: AZ, CA, CO, HI, FL, NV, OR, TX, and WA.
*Borrower is responsible for property taxes, homeowners insurance, and property maintenance. A HECM is a home-secured debt payable upon default or a maturity event. **Some restrictions apply. This material has not been reviewed, approved, or issued by HUD, FHA, or any government agency.
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 Call us today at 424 225 2167 or Chat or Email to explore your options. One of our mortgage professionals will help you get the best possible Reverse Mortgage loan solution for your situation. We’ll be with you every step of the process and not hand you off to someone else.
The services referred to herein are not available to persons located outside the state of California.
Borrower is responsible for property taxes, homeowners insurance, and property maintenance. A HECM is a home-secured debt payable upon default or a maturity event. Some restrictions apply. This material has not been reviewed, approved, or issued by HUD, FHA, or any government agency.