If you want to stay in your home and either increase your financial flexibility or improve your everyday cash flow, then you should consider a reverse mortgage. If you decide that the loan is interesting, then you probably want to know how to get the best reverse mortgage.
Follow these 7 steps to the best loan for you.
1. Choose the HECM
If you have a home of average value, then the Home Equity Conversion Mortgage (HECM) is probably the best reverse mortgage for you.
The HECM is — by far — the most popular reverse mortgage loan and the one that is guaranteed by the federal government and administered by the Department of Housing and Urban Development (HUD).
If your home is of a particularly high value, then you might want to consider a jumbo reverse mortgage. A jumbo loan could get you a higher loan amount.
2. Think About the Timing of Your Loan
There are three ways to use timing to boost your reverse mortgage loan amount.
- Low Interest Rates: You will be able to borrow more and owe less on a reverse mortgage when interest rates are low. (Experts predict that we may be entering a time of rising interest rates.)
- High Housing Values: The more your home is worth, the more you will be able to borrow. (In some areas of the country, housing values are at record highs.)
- When You Are Older: The older you (and your spouse) are, the more money you will be able to borrow. (If you get a reverse mortgage when you are young, then you can borrow less, but more money is available as an equity reserve. As you age, you can borrow more, but there is less retained as home equity.)
3. Don’t Make Your Final Decision Until You Have Met with a Reverse Mortgage Counselor
An important part of the reverse mortgage loan process is meeting and working with a reverse mortgage counselor. Reverse mortgage HUD counseling is required and is designed to help you make the best decision for you. The counselor will:
- Educate you about how reverse mortgages work and help you decide whether or not the product is a good fit for you.
- Help you explore other financial options that might also meet your needs.
- Provide guidance and resources to help you make the best decision.
- Provide support throughout the reverse mortgage application process.
Reverse mortgage counselors are trained by HUD and are not affiliated with any lender. You will pay the cost of this counseling — usually about $85 to $130 depending on the agency. Money very well spent whether or not you get the loan.
Learn more in “Your Guide to Reverse Mortgage Counseling.”
4. Talk With a Variety of Reverse Mortgage Lenders
You will want to work with a lender you like and that can offer you the best rates and fees.
Talk to a variety of reverse mortgage lenders and compare their offers before choosing.
5. Compare the TALC Rate from Different Lenders
If you are getting reverse mortgage loan estimates from a variety of lenders, be sure to ask them to give you the Total Annual Loan Cost (TALC) rate. The TALC rate will let you compare the offers on equal terms and find the best reverse mortgage.
Another way to compare different loans is to show your offers to your reverse mortgage counselor. The counselor should be able to help you compare interest rates, rates of home appreciation, credit line options and more.
6. Understand Your Numbers
If you want to get the best reverse mortgage, you need to really understand how the loan works. Your loan amount is determined by a variety of factors including:
- Your age and your spouse’s age (if applicable)
- Current interest rates
- The appraised value of your home (or the FHA lending limit of $970,800 — whichever is less).
However, your total loan amount may not be the same as the amount of money available to you. Besides access to cash, your reverse mortgage also offers the following benefits:
1. No More Monthly Mortgage Payments: If you have an existing mortgage on your home, then part of your reverse mortgage loan amount will be used to completely pay off that loan. The good news here is that this means NO MORE monthly mortgage payments.
2. You Own Your Home: When you get a reverse mortgage you still own your home and are guaranteed the ability to stay there for the rest of your life — so long as it is your permanent residence.
3. Flexibility: When you get a reverse mortgage, you are only borrowing part of your home’s value. This leaves you with more financial flexibility for the future. These reserves give you access to additional options to use more money later: downsize, relocate or potentially leave an estate to heirs.
7. Minimize the Costs of the Loan with a Line of Credit
The best reverse mortgage is one where you get the most money at the lowest cost. If you take your unused loan amount as a line of credit, then you can dramatically lower interest costs on the loan.
When you get a reverse mortgage, you will accrue interest on the money you use. While the interest is not paid back until you or your heirs sell your home, you can conserve a lot of money by avoiding paying interest on unused money.
If you opt to take your loan as a line of credit, you will not pay interest on the money held in the credit line and the value of this account will grow every year.
Withdraw the money whenever you need it but only pay interest on the amount you use.
