What you need to know about reverse mortgages

By George Mannes, senior editor

1. These loans are now cheaper to take out

Thanks to new federal rules, reverse mortgages don't have to sting as much at the outset. Previously these loans -- which let owners 62 or older borrow against their home and don't have to be paid back until the owner moves or dies -- always carried high upfront fees.

A new option, called a HECM Saver, cuts the initial insurance premium -- one of the biggest costs -- from 2% to 0.01% of your home's value. On a $400,000 home, that means paying $40 instead of $8,000.

Another welcome change: more thorough mandatory counseling for potential borrowers, which is designed to make sure you really need a reverse mortgage, understand it, and can afford to stay in your home even after taking out the loan.

2. Competition is heading up

Banks are also cutting deals on fees, which can add up. The traditional reverse mortgage, called HECM Standard, still carries that 2% upfront premium. On all types of these loans, origination fees can hit $6,000. And you're on the hook for closing costs, including an appraisal and title insurance.

But today some lenders will pay more than half of the initial premium and waive origination fees, says John K. Lunde of analytics firm Reverse Market Insight. Start your shopping at the lender directory at reversemortgage.org.

3. Lower costs make the loans more versatile

The new fee structure could make reverse mortgages appealing to far more homeowners. Up to now the high upfront fees have turned off most seniors the majority of borrowers use the proceeds to pay off a regular mortgage.

The HECM Saver, says Barbara Stucki of the National Council on Aging, "puts conventional wisdom on its head." For example, reverse mortgages let you opt for a line of credit. With no credit check needed and potentially lower fees than on a HELOC, the loan could be the best way to set up an emergency fund.

4. But shopping is even more complicated

Picking the right loan remains tricky. Do you want a lump sum (with a variable or fixed rate?) or the variable-rate credit line or monthly payment options?

The new HECM Saver adds another wrinkle: The amount you can borrow a function of your age and your home's value is lower than it is with a HECM Standard. A 65-year-old in a paid-off $300,000 Illinois home could net $182,000 with a traditional loan but only $146,000 with a HECM Saver, according to MetLife Bank. To see your options, visit AARP.

5. You (or your kids) will still pay a high price someday

You may not feel a cash pinch now, but someone will later. No matter what kind of reverse mortgage you take out, you'll be charged not just interest but also a 1.25% annual insurance premium on the outstanding loan balance (up from 0.5%).

You don't have to pay interest and premiums during the life of the loan (you are still responsible for taxes, homeowners insurance, and maintenance, though). Instead, the bill comes due when your house is sold. So your heirs will collect some cash only if the sales price is higher than the loan balance and total lifetime fees.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.78%3.79%
15 yr fixed2.98%2.93%
5/1 ARM3.06%2.99%
30 yr refi3.85%3.85%
15 yr refi3.05%3.00%
Rate data provided
by Bankrate.com
View rates in your area
Find personalized rates:
  • Find Homes for sale
    Real estate and homes for sale on Trulia

  • Property Type
  • Find a home in: New York | Atlanta | Chicago | Los Angeles
  • Washington D.C | Houston | Philadelphia | More options
Index Last Change % Change
Dow 18,080.14 21.45 0.12%
Nasdaq 5,092.09 36.02 0.71%
S&P 500 2,117.69 4.76 0.23%
Treasuries 1.92 -0.03 -1.54%
Data as of 10:09pm ET
Company Price Change % Change
Microsoft Corp 47.87 4.53 10.45%
Apple Inc 130.28 0.61 0.47%
Comcast Corp 59.64 0.41 0.69%
AT&T Inc 34.01 -0.22 -0.64%
Xerox Corp 11.99 -1.15 -8.75%
Data as of Apr 24


Shares in Italian bank Intesa Sanpaolo dropped sharply Friday after hoaxers claimed its CEO had quit after faking billions in profits. More

The impact of rising immigration on Britain's economy has become a hot topic in the election campaign. More

Stars of Youtube, Vine, Snapchat, and Twitter are attending this year's White House Correspondents' Dinner. More

A Girl Scouts Cookie Oven rolling out to Wal-Mart, Target, Kmart stores this summer will let you bake those iconic thin mints right at home. More