Reverse Mortgage Costs - how expensive are they?

By
Services for Real Estate Pros with Southwest Florida Notaries (Mortgage Notary Signing Agent)

As a follow-up to my blog, AGAIN, before you say no to a reverse mortgage, learn the correct facts! Don't believe the myths!as well as my blog, Are Reverse Mortgages costs so much more than regular mortgages?  and also several people commenting about the costs on the blog of Mr Jones, You Should Worry If Dad Says He's Getting a Reverse MortgageI want to expand on a couple of things.  First, how costly are they truly?  Yes, I pretty much proved my point that the costs not including the mortgage insurance were in line with regular mortgages.  With the mortgage insurance, it does add 2%, so it comes pretty close to the 6% mentioned in Mr Jone's blog.  Keep in mind, this 6% is spread out among the LO/broker, title company, FHA/HUD, state and county taxes, appraiser, and so forth.  Over time, with relatively low interest rates, it is less than most HELOCS, and even some regular mortgages, so that lowers the overall costs.

And we all know, on a purchase/sale, when a Realtor is involved, their costs are usually about 5-6%, sometimes lower, and sometimes higher, but in most cases, that is a pretty good average.  Do they get too much?  Considering all the work they do with no pay, I do not have any problems with that percentage.  Is it high? Maybe, but as I said, I think they do a lot of work with no pay as well, so it evens out, I feel.Senior Couple

Do the closing costs on a reverse mortgage eat up all of a persons equity in their home?  No, but yes it does take some.  Remember, someone getting a reverse mortgage no longer needs to make payments on their home mortgage, allowing them to focus all their income on paying electric & all utility bills, food, medicines, doctor visits, and also potentially some enjoyable things such as a vacation to relatives, cruise, or whatever makes them happy!  How is that for their quality of life!  Also, keep in mind as pointed out in several blogs, the interest rate.  This is way below almost all HELOCS, and even below many regular mortgages.  So that impacts the bottom line of the costs!  If they are concerned with leaving the home to a family member, they CAN make payments to keep the loan balance lower, and increase the chance that a family member could get their own financing and keep the house in the family, if they WANT to do this, but again, that is another OPTION.

How much moneyDo most get the adjustable, yes.  And as mentioned in my blog, for twenty years, it stays usually between 5-8%.  Lately it has been around the 3-4% mark.  In 1991 and in 2000, it went into the 9%.  In 2003 & 4, it was around 1.07 & 2.14%.  How is that for a great rate??  (These figures are for the monthly adjusting, the yearly one only went to mid-7%'s in 1991 & 2000)  With the monthly adjusting Reverse Mortgages, which most get, it gives them the access to the most amount of money.  Also, getting back to it eating up 'all their available equity' keep in mind, if they are paying off one or two existing mortgages, THAT is what ate up a lot of their equity - having one or two mortgages.  What caused that is what needs to be examined.  Was it poor money management, or poor retirement planning?  Was it an unexpected medical illness to the person or couple?  Were they defrauded out of a lot or all of their money.  Did they gamble in general, or in stocks?  There are endless possibilities, but the fees to get the reverse mortgage did not CAUSE the person to eat up all their equity.  Remember, it is about 6% of the value of their home.  That leaves 94% more to be looked at.  With the reverse mortgage, they can also only use a certain percentage of the equity as well.  Most probably can only use about 50-70% of their equity, the rest cannot be touched, allowing for the value of the home to hopefully repay the loan (of course if it does not, the mortgage insurance will cover the shortage).

What is the cost of a person or couple having their house foreclosed upon?  There are many senior homeowners losing their homes these days because of an inability to pay their mortgage, and with depressed home values, now cannot get a reverse mortgage.  That is another thing that you cannot easily figure or compute, but it is VERY costly.  Imagine being 70, 80 years old and losing your home to foreclosure!  WOW! It is a statistical FACT, very, very few with reverse mortgages are foreclosed upon.  It is not impossible to happen, but very unlikely, and tremendously less than regular mortgages!  That cost is just way to high for me to even think about!

While a reverse mortgage might charge more up front to get the loan, the benefits of a better quality of life, lower interest rates over time, they can suddenly be less expensive that it first appears, and statistically, sometimes a lot less than regular mortgages in just a few short years.  And as I said, what is the value of less stress and improved quality of life?  Talk to some that have gotten them in the last 5 to 10 years.  As I said, many of the reverse mortgages in the 70's and 80's WERE a rip-off, believe me, there WERE problems, but the FHA/HUD backed reverse mortgages today have put a stop to those bad practices, and the ones today, can beWhat Direction an awesome benefit to senior homeowners!  Reverse mortgages are NOT for everyone in all circumstances, but before you say no to a reverse mortgage, please learn all the correct facts to make an informed decision!

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Rainmaker
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Ted Baker
Carmody and Associates LLC - Winter Haven, FL
MidFloridaMediation.com

Thanks, Ron - there has been some irresponsible reporting around the country about problems with reverse mortgages which are not really related to the reverse mortgage when you get an objective look at the facts.  (more likely the annuity product that the broker sold to the senior which was not appropriate for their age and circumstances)

So it is helpful to see your articles providing accurate information and providing questions for the senior client to ask of their advisors.  Reverse mortgages have a real place in the senior environment.  Not the right answer for everybody, but an excellent solution for the appropriate client.

 

Jun 23, 2008 11:40 AM #1
Rainer
120,136
Ronald Gillis
Southwest Florida Notaries (Mortgage Notary Signing Agent) - Port Charlotte, FL
CNSA Southwest Florida. Notaries, Port Charlotte, 941-7-NOTARY

Thank you Ted for noticing & commenting!

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Jun 29, 2008 02:24 PM #2
Rainer
9,347
Scott Otsuka
Infinity Financial Mortgage - Roseville, CA

like all things, reverse mortgages should not be viewed in terms of cost, but rather in terms of value.  What is the cost of the brake job that keeps your car safe for you and your family?  Some say it's $100, I say it's priceless in it's value.

Aug 27, 2008 12:05 AM #3
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Rainer
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Ronald Gillis

CNSA Southwest Florida. Notaries, Port Charlotte, 941-7-NOTARY
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