Reverse Mortgage Reviews: Is It A Rip Off Or A Good Idea?

  • Single-purpose reverse mortgage. These reverse mortgages are offered by state, local and nonprofit agencies. They must be used to pay for a specific, lender-approved item. This is typically the most affordable type of reverse mortgage.
  • Home Equity Conversion Mortgage (HECM). An HECM is a reverse mortgage insured by the U.S. Department of Housing and Urban Development (HUD). This is the most popular type of reverse mortgage because it does not impose income or medical requirements on the borrower. What’s more, the loan funds can be used for any purpose, and there are several payment options.
  • Proprietary reverse mortgage. Proprietary reverse mortgages are reserved for higher-value homes. They are not federally insured and, therefore, do not impose upfront or monthly mortgage insurance premiums.

Reverse mortgages often come with high fees and closing costs, and a potentially costly mortgage insurance premium. For loans equal to 60% or less of the home’s appraised value, this premium typically equals 0.5%. However, if a reverse mortgage exceeds 60% of the home’s value, the premium can increase to 2.5% of the loan amount.

The Good Vs. Bad of a Reverse Mortgage

While a reverse mortgage may seem like a good way to access cash in your golden years, it’s important to understand the realities of this type of loan. Here’s how you can expect to benefit from a reverse mortgage-and what to look out for when comparing this loan option to other alternatives.

The Good

If you’re worried about your ability to cover living expenses or otherwise meet financial obligations, a reverse mortgage can provide the life raft you need.

  • A homeowner who might otherwise have to downsize can use a reverse mortgage to stay in her home.
  • Loan proceeds can be used to totally pay off an existing mortgage, thus freeing up funds for living expenses.
  • Borrowers who comply with lending terms don’t have to make payments until after they move out of the house or pass away.