Reverse mortgages have become a popular choice among seniors facing financial difficulty. After retirement it becomes especially difficult to keep up with monthly bills, rising medical costs and a struggling economy. For those on a limited income, reverse mortgages can be an excellent choice, but it’s important to be informed before starting the process.
Most senior aged 62 or older who holds significant equity in their homes. These loans use money from the equity you’ve built in your home over years and repay you in monthly or lump sum installments. The most helpful part about a reverse mortgage loan is that typically does not have to be repaid until the homeowner leaves the home, either by passing or selling the home. The home is then sold to repay the loan, which is capped at the home’s appraisal, and any remaining equity is redistributed either to the homeowner or heirs.
Predatory lending is discouraged by the federal government, who insures the loans which they deem trustworthy. Still, it’s up to you, the borrower, to make sure you don’t get taken advantage of in a time of need. Never sign a deal under pressure, no matter how severe, as you may end up regretting it later. Signing a bad deal on a reverse mortgage loan can affect your loved ones as well.
Here are 5 important questions to ask your lender before signing up for a reverse mortgage loan:
1. How long have you been a reverse mortgage specialist?
Experience is important in every profession, but you want to know your lender has a history of working with reverse mortgages. Reverse mortgage lending is an attractive field to people who are unsuccessful in other areas, such as traditional mortgage lending. You’ll want a lender with at least a few years experience to handle your hard-earned equity.
2. Do you have NRMLA membership?
NRMLA (National Reverse Mortgage Loan Association) uphold theirto a high ethical and legal code. This means that lenders who are members of NRMLA have an obligation to be transparent about the potential risks of a reverse mortgage, as well as provide all the options available to a borrower, despite loss or gain to the lender.
Not being a member of NRMLA does not necessarily imply a lender is dishonest or untrustworthy, but it is a good place to start when looking for credibility.
3. What is the interest rate?
You have the option of a, or a monthly or annually adjusted interest rate when it comes to your reverse mortgage. It’s important to note that these interest rates apply to the growing loan, and the amount will continue to increase over time even if the rate is the same. Lenders should try to be competitive with their interest rates, and open with you about the full costs of the loan.
Interest rates vary from lender to lender, so don’t be afraid to shop around if you don’t like the answer from one lender.
4. Are you approved for federal insurance?
HECM loans are reverse mortgages which are insured by the FHA (Federal Housing Association). If your lender goes out of business, the government will continue handling your loan. They will also ensure that you never have to pay more than the worth of the home to repay the loan, and that proceeds from the equity after repayment are properly distributed. Make sure your lender is qualified to make HECM loans, as these are the only reverse mortgages insured by the government.
5. What are the additional fees?
Here is a comprehensive list of the fees you may encounter during the reverse mortgage process and from your lender
- Mortgage Insurance Premium (should not vary)
- Appraisal fee
- Servicing fee
- Closing costs (document preparation fees, credit report fees, surveying costs, etc.)
Ask for a comprehensive explanation of all fees and additional costs within the process. If you try multiple lenders, you may find that these fees vary.
Don’t be afraid to ask your reverse mortgage specialist any questions you have regarding your reverse mortgage. A good lender will be patient and knowledgeable, and eager to do what’s best by your family. And remember, the best defense against predatory lending or just poor service is to be well informed before meeting with your lender.