A Reverse Mortgage does not always require higher closing costs and there is a strategy to purchase or refinance real estate with low closing costs while having no monthly mortgage payment. **
Reverse Mortgage information can be confusing for many including the uses, costs, and even simply how they work. Therefore, we look to not only provide these mortgage solutions for retirees purchasing or refinancing a home, but also look to educate them in the details.
On a Reverse Mortgage, the borrower may choose closing costs that are either charged up-front or they are paid over time in the rate and mortgage insurance. Up-front costs can include lender fees, up-front FHA mortgage insurance, plus normal closing / settlement charges such as appraisal, attorney fees, etc (learn more about closing costs and definitions). When using a Reverse Mortgage as a refinance, retirees could pay the closing costs up-front by including them in the new loan amount so that there is potentially no cost paid out of pocket depending on the usable equity in the property. But the borrower may also choose an option to lower the costs paid at closing by choosing a little higher rate. When using a Reverse Mortgage to purchase real estate, the senior buyer has the choice of paying the costs out of pocket at closing or also by choosing an interest rate that provides a lender credit to pay costs. Keep in mind that although there is no required mortgage payment, the borrower must continue to pay all property taxes and insurance. Additionally, the borrower must keep the property in good repair and occupy the home as a principal residence.
How to have lower closing costs up-front on a Reverse Mortgage:
An option mentioned above is to pay a little higher interest rate so that the lender is able to pay part of your closing costs. This works by the lender trading the up-front ability to pay towards your closing costs by obtaining a higher interest rate over the term. This reward can be a benefit for a retiree, especially when the loan is a larger size because just a small increase in rate could pay a larger amount of closing costs. In addition, the strategy of increasing the rate to pay closing costs could be beneficial if the borrower will hold the loan for a shorter amount of time as the higher rate could be for just a short time. When a borrower owes the loan over a longer period of time, the cost of the higher rate could surpass the up-front cost option. Discussing these strategies is one of the important steps we will discuss in detail with our client so that the borrowers feel confident in choosing the option that fits their goals and scenario best.
Our Reverse Mortgages are Home Equity Conversion Mortgages (HECM) which are insured by the Federal Housing Administration (FHA). A mandatory requirement for obtaining a HECM / Reverse Mortgage is to receive HUD Approved Counseling, which is great because it educates the borrower on top of the information we provide in consultations and in writing in the form of disclosures. We will provide a list of HUD Counselors nearest the borrower to complete this counseling requirement.
Whether you are a senior or are a senior service provider such as a CPA / Financial Advisor and have questions about Reverse Mortgage options, contact Bob Moyer today at 910-418-4609. Bob started in the mortgage business in 1994 and is skilled in helping you make an important decision in your retirement living years.
** Borrowers must continue to keep the property in good repair, pay taxes and insurance, and occupy the home as a primary residence
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