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Top 5 Highest Ranked Reverse Mortgages For 2019
How We Chose Our Top List
We researched the most trusted reverse mortgage lenders on the market and did hours of research. From this research, we ranked the top companies based on the options they offer seniors. Take a look at our list of the best reverse mortgage companies for seniors.
After retirement, you may find that your fixed retirement income just isn’t keeping up with the cost of living. Any number of reasons can leave you in a position of needing more money. As you try to figure out what you’re going to do to cover your expenses, you might want to consider using the equity you have accrued in your home to help. If you have lived in your home for a long period of time or if your home is paid off, the amount available for use could be substantial.
There are three ways you can use your home to get money. The first is you can sell it, but then you’ll have to go through the hassle of moving. The second, you can borrow against your home’s value, but you’ll have to make payments to repay the loan.
The third way leaves you with a win-win scenario. Not only will you get to keep your home … you’ll also receive cash to use as you wish, and you won’t have to make monthly payments to pay off the loan as long as you continue to live in the home. We’re talking about a reverse mortgage and we’ll be discussing reverse mortgages at length because it’s important you have the information you need to make the best possible choice for you now and in the future.
If you’re 62 years of age or older, own a home with sufficient equity and you meet all other eligibility requirements, you may qualify for a reverse mortgage – a loan taken against the equity of your home. It allows you to use the value of your home to get cash. And as we already stated, you won’t have to move and, as long as you live in the home, you won’t have to repay the loan.
Because you won’t be making a monthly payment, your income isn’t used to determine if you qualify for a reverse mortgage. In fact, you could have no income at all and still qualify!
Unlike typical home loans, with a reverse mortgage, you won’t make monthly payments or need any source of income to qualify.
Reverse mortgages are the “reverse” of a traditional home mortgage. With a traditional “forward” loan, you borrow money to purchase a home. As you pay off the loan, the debt (loan amount) you owe decreases while your home equity increases. When you paid off the traditional loan, your home’s equity equals the value of the home.
With a reverse mortgage, you are borrowing against the equity of your home. With a reverse mortgage, you receive payment(s) which cause your debt to increase and your home equity to decrease. The money you owe to the lender (your debt) gets larger each time you receive a payment and as interest is accrued.
In short, a reverse mortgage loan allows persons age 62 and older to convert the equity of their home into cash they can use for whatever they choose.
All reverse mortgages convert your home’s equity into three things:
Since you’ve already had a traditional mortgage, it might be easier to understand a reverse mortgage by comparing the basics of the two loan types.
|Reverse Mortgage||Loan Features||Traditional Mortgage|
|X||Money borrowed based on home equity||X|
|X||Own the home||X|
|X||Protection against declining home values(1)|
|X||Optional monthly payments(2)|
|X||Flexible payment options|
|X||Higher costs and fees to process|
|Need a source of income to qualify||X|
Despite the debt increase, you typically won’t be required to pay anything back as long as you (or any co-owner) live in the home or until you (and any co-owner):
When the reverse mortgage does become due because one of these conditions occur, the equity that remains in the home can be quite small (if any remains) and you (or your heirs) may owe a tidy sum of money. This may force you or your heirs to sell the home.
Repayment may also be required if you “default” on the loan by:
However, the lender typically has the option to pay for these expenses by reducing your loan advances and using the difference to pay for the insurance, property taxes or home maintenance if you have not already maxed out the loan value.
Other “conditions of default” include:
A reverse mortgage may have an “acceleration clause.” This means that should certain conditions exist the loan becomes due and payable. These include:
It’s important that you review the loan documents thoroughly so you understand all conditions that can lead to your loan becoming due and payable.
Although there are different types of reverse mortgages, most have the following features:
The amount of money you receive will depend on the type of reverse mortgage plan or program and the type of cash advance (see “How Reverse Mortgages are Paid Out” below).
Some reverse mortgages cost a lot more than others to process and maintain, which will reduce the amount of money available to you. Dollar amounts available to you can also be impacted by closing costs and interest rates. It’s a good idea to shop around to get the best deal for your situation.
Within each loan program, the amount of money you can receive often depends on your home’s value and your age:
Once you are approved for a reverse mortgage, the money you receive can be paid out to you in several ways depending upon the kind of loan (see loan types below) and the terms of the loan.
A line of credit account offers an attractive benefit, in that the amount of money available to you increases over time. For example, if your line of credit equals $250,000 and you withdraw $25,000. That leaves $225,000 which will grow. A year later, that $225,000 increases by the equivalent rate being charged on the balance of your loan. If that rate is 6% per year, then that $225,000 becomes $238,500.
A line of credit account will give you a lot more total cash in the long run. It grows every month as long as you have any remaining balance in the account – until you withdraw all funds available to you.
There are three main types of reverse mortgages:
Let’s look at each of these in more depth.
The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage that is insured by the federal government through the Federal Housing Administration (FHA). Based on your age and your home’s value, the FHA informs HECM lenders how much they can lend to you. The FHA guarantees that the lender meets their obligations and the HECM program limits your loan costs.
When it comes to reverse mortgages, HECM loans generally give out substantially more cash and are also more flexible in how the cash is paid to you. The money you receive from a HECM loan can be used for any purpose.
The HECM program offers the most cash advance options:
The amount of money you can receive through a HECM depends upon your age, your home’s value and current interest rates. The older you are, the more cash you receive; however, if there is more than one owner, the age of the youngest is used to determine the loan amount. Lower interest rates when the loan closes provide you with a greater loan amount.
You will be required to meet with a HUD-approved counselor (by phone or in-person) to discuss the financial consequences of taking out a HECM, analyze your situation and to consider alternatives to a reverse mortgage.
A single-purpose reverse mortgage, sometimes referred to as a deferred payment loan (DPL), is offered by many local and some state government agencies. Unlike a HECM, a single-purpose reverse mortgage can only be used for improving and repairing your home and is disbursed as a one-time lump sum.
Single-purpose reverse mortgages are not available everywhere, and they can be hard to find, in part, because they go by so many different names. If you want to take out a single-purpose reverse mortgage, and cannot readily find a lender, contact the following agencies to help you locate a lender:
These agencies may offer single-purpose reverse mortgages themselves, may know who does if they do not, or may be able to offer other low-cost home repair loan options.
Single-purpose reverse mortgages:
A single-purpose reverse mortgage may be able to be combined with a HECM if the single-purpose reverse mortgage lender agrees to be repaid after the HECM is repaid.
Some single-purpose reverse mortgages forgive all or part of the loan if you live in your home for a specific period of time, which means you may never be required to pay anything back.
For those whose home values are greater than HUD’s limits allow, a proprietary reverse mortgage, sometimes called a jumbo reverse mortgage, may provide a larger cash disbursement which can be used for any purpose. Proprietary reverse mortgages are offered by and generally backed by:
Unlike HECM loans which can be offered by any lender approved by the FHA, the companies that have “ownership rights” to these products determine who offers their products.
Proprietary reverse mortgages:
As you shop for loans, be sure to compare all options even if you have a higher valued home. For example, the most widely available proprietary reverse mortgage plan offers a non-growing line of credit. When compared to the HECM loan which is initially smaller, but grows larger over time, you may receive more total cash from the HECM than the proprietary reverse mortgage in certain scenarios.
It is advised to have both you and your spouse listed as co-borrowers on a reverse mortgage. If one spouse dies or has to move out for medical reasons, the remaining spouse can continue to live in the home and receive disbursements from the reverse mortgage.
However, if one spouse is younger than 62 when the HECM is granted, that spouse cannot be listed as a borrower. Protections have been set in place allowing the non-borrowing spouse to continue living in the home provided that:
Reverse mortgage fees tend to be higher than what you pay on a traditional mortgage. Additionally, loan costs on a reverse mortgage vary from one lender to another, sometimes by a fairly significant amount. The cost of a reverse mortgage depends on the type of loan you choose, how much money you take upfront and the lender.
Not all loans include the same loan costs. This makes the total cost of reverse mortgage loans difficult to understand and evaluate; and, it’s why the federal Truth-in-Lending law mandates that lenders disclose the Total Annual Loan Cost (TALC) on all reverse mortgages.
The TALC is a combination of all reverse mortgage costs into a single annual average rate. The TALC shows just how much the total cost of a reverse mortgage loan can be. TALC disclosures show that these loans are typically most expensive when you live in your home only a few years after closing the deal. Because the start-up costs are a large portion of the total amount owed in the early years of the loan, the short-term TALC rates are higher. But as the years pass, the start-up costs become a smaller portion of the debt and the TALC rate goes down.
The longer you live in your home after receiving the reverse mortgage or the less the home’s value increases, the less expensive the loan is likely to be.
Costs and fees you can expect to pay may include:
The HECM for Purchase is an FHA-insured home loan that allows seniors (62 years or older) to use the equity from the sale of a previous residence to purchase their next primary residence all in one transaction. Regardless of how long you reside in the home or what happens to your home’s value, you only make one, initial down payment towards the purchase.
The HECM for purchase loan is used to:
With a HECM for purchase loan, you continue to own the new home as long as it’s your primary residence and you meet all loan obligations.
Eligibility requirements include:
The “right of rescission” is the right (set forth by the Truth in Lending Act) of a borrower to cancel a home equity loan or line of credit or to cancel a refinance transaction within three business days of closing. If you decide you don’t want to go through with the loan, you must do so in writing. You cannot rescind orally in person or by telephone.
If you decide to use the “right of rescission,” it must be written:
Now that we’ve looked at these top five lenders, perhaps you’d like to check out some others for yourself. Here are a couple links that will help you feel you’ve done everything necessary to find the right reverse mortgage lender for you.
As we come to the end of our discussion concerning reverse mortgages, here are a few important tips that should be emphasized. These include:
This cannot be stressed enough.
The origination fee on a loan pays the lender for preparing your paperwork and processing your loan. This fee can run as high as 2% of the loan. On a $250,000 home, for example, the origination fee could be as high as $5000. Origination fee rates can vary from one lender to another. Some lenders may be willing to negotiate the amount.
The servicing fee pays for what lenders and their agents do after closing. A servicing fee can cost as much as $35 per month. This fee can vary from lender to lender. Over the life of a reverse mortgage, these numbers can add up. Be sure to ask and then shop around for the best rates.
According to the Consumer Financial Protection Bureau, the interest rate can make or break a reverse mortgage … and you won’t know if you’ve got the best deal possible if you don’t shop around.
Only you can answer that question. Some will tell you that it’s too good to be true, and others say they’re a scam. What is true about a reverse mortgage is that it slowly siphons the equity out of your home. If you plan to remain in your home until the end, and you have no heirs, your heirs are uninterested in maintaining the property or your heirs are financially able to repay the loan, then a reverse mortgage can be a no-brainer as a means of obtaining additional retirement income.