subject: Lower Reverse Mortgage Cost, New Type Fha Reverse Mortgage [print this page] The problem with the high reverse mortgage cost has profiled this product as a last resort, which is used after all other means have been used. It is good, that FHA launched a new cheaper product, because it brings the reverse loan to those, who have been doubting.
1. The Reverse Mortgage Basics.
The core idea is to arrange more disposable cash money to a senior borrower from the equity of his or her permanent home. This target group does not want to move away from their old homes, where all the memories are.
The qualification rules are simple. A senior must be at least 62, own a home, where he lives permanently and where he has equity left. Most home types are accepted. A senior will get the loan amount, which depends on his age, appraised home value and on the interest rates. The lender will pay to him either as a lump sum, credit line, monthly payments or as a combination of all these. Maximum three seniors can be the borrowers.
The reverse loan has no back payments during the running time, and the loan capital, interests and all costs will paid back, when a senior will sell the home, move away, leave the property taxes or insurances unpaid or pass away. Then the home will be sold and this selling price is used to pay all the owed money to the lender. If this does not cover everything, the missing part comes from the obligatory mortgage insurance, so the borrower will never lose more than the home value and the lender gets always his money.
2. Problem With Reverse Mortgage Cost, High Upfront Fees.
The upfront fees, which has raised big titles in the press, can increase to 5 % of the home value. The new type FHA reserve mortgage loan, called Saver, includes a term, where a borrower pays a mortgage insurance premium, which is 0,01 % of the home value, compared to 2 % with the traditional reverse mortgage.
Many lenders reduce also other fees concerning Saver and traditional reverse mortgages, like the servicing fees and upfront origination fee, which is typically 2 % of the first $ 200.000 of the home value plus 1 % of the balance, maximum being $ 6.000.
3. Saver Has Also Negative Sides.
Despite the fact, that Saver reduces the reverse mortgage cost in the form of the lower insurance premium, the borrower gets 11 % - 18 % less loan compared to the traditional mortgage. This is important for those, who want the maximum sums for their purposes.
4. Some Lenders Use Higher Interest Rates For FHA Saver.
With this they try to compensate the fact, that Saver loan sums are smaller, but the work they do is the same, so by increasing the interest rate, the borrower will make enough margin to them.
5. The Guidance And Calculations Are Needed.
This is a typical case, where an expert must compare this FHA new Saver with the other offers from the lenders to be able to judge, whether the Saver gives lower total costs, with its lower upfront fees but higher interest rates. The longer the borrower uses the reverse loan, the bigger will the interest cost be.
The official reverse mortgage counselor, approved by US Department of Housing and Urban Development, is the right expert to guide and to make the needed calculations.
