Best Reverse Mortgage
Simply put, the best reverse mortgage is the reverse mortgage that works best for you. There are several different kinds of reverse mortgages to choose from, and they are all intended to meet different needs and comfort zones.
There are four ways in which you can receive the proceeds of a reverse mortgage. You can receive all the money at once in a lump sum payment at a fixed rate. This will give you the most money and it will also give you the lowest overall interest rate. You can receive the money in an adjustable rate line of credit. The interest rate will start off lower than with the fixed rate, but over the life of the loan the rate will likely be higher. This is why it will give you less money than the fixed rate. You can receive the money as a set amount in monthly income (tenure), either for life or for a certain period of time. This option will give you the least amount of money, and like the line of credit, the rate is adjustable. Finally, you can receive the money in a combination of the line of credit and monthly income.
The fixed rate lump sum option will be your choice if you are using the HECM to purchase a home, as you need the most money possible up front. So also you will need the fixed rate lump sum if you have a sizable mortgage to pay off, or if there is some other major need for a significant amount of money available quickly.
If you don’t have a large mortgage to pay off, and there is no other major pressing need, but you are simply uncomfortable with an adjustable rate, then you will choose the fixed rate lump sum option also. This is currently the most popular option.
If you have no mortgage to pay off and you simply want a backup access to money with no payment requirement if you use it, then you would likely look at the line of credit. If you have no mortgage and you want to supplement your monthly income, then you would choose the monthly income option. If you have a relatively small mortgage to pay off and you want monthly income, then you might choose a small line of credit, enough to pay that off, in combination with a monthly income.
There are also costs to consider. A reverse mortgage requires both an up-front lump sum mortgage insurance (MI) of 2% of the value of the home (up to a max value of $625,500). If your home is worth $500,000, that’s $10,000 just for the up-front portion of the MI.
The HECM Saver option allows you to practically eliminate the up-front MI in exchange for receiving less money. The HECM Saver is available both for the lump sum and the line of credit forms of reverse mortgage. If you are using the line of credit option as a sort of estate planning tool, meaning you have no mortgage to pay off and you are setting up the line of credit as stand-by liquidity so as not to disturb your other investments, then you may choose the Saver line of credit to keep costs low. Having a lower line of credit in this case is not a big deal. So also if you have a mortgage, want a fixed rate, don’t need the additional cash, and can still pay off the mortgage with a lower eligibility, then you might choose the Saver lump sum version.
The reverse mortgage has evolved over the years to meet the needs of seniors in a variety of different situations. As you do your homework with sites like this, and consulting with a good loan officer, you will find the best reverse mortgage for you.