Reverse mortgage companies provide homeowners ages 62 and over with home equity conversion mortgages, or HECMs, that convert home equity into cash. The best reverse mortgage lender provides multiple options for tapping your home equity and solid educational resources focused on the lending process and reverse mortgage rates and costs. A counseling session is mandated for all homeowners who apply for a reverse mortgage, but you will still most likely have questions. A good lender is prepared to answer questions and serve as a guide through the entire process.
Michael Bocelli, VP of Senior Lending/Reserve Manager at Quontic bank, said a reverse mortgage can benefit a person over 60 who is retired, heading into retirement or who wants to age in place in their own home.
“This can be someone who may be looking to pay off an existing mortgage to reduce their monthly liabilities or just looking to have access to additional funds for home improvements, to cover medical expenses or supplement their retirement income,” Bocelli said. “This may also include someone who may have transferred their property into an irrevocable trust for Medicaid purposes and now needs to access some equity from their home.”
The 4 best reverse mortgage lenders for 2020
- One Reverse Mortgage – Best national option
- Quontic Bank – Best digital option
- AAG – Best recognized brand
- Longbridge – Best online tools
|Sample Interest Rates on October 2019 Loans||Mortgage Types|
|One Reverse Mortgage||2.949% to 5.168%||Adjustable-rate HECM
HECM for purchase
|Quontic Bank||4.195% to 4.815%||HECM|
|AAG||2.264% to 6.168%||Lump-sum payout
Growing line of credit
Term or tenure
Reverse for purchase
|Longbridge||2.949% to 4.333%||HECM reverse mortgage
HECM for purchase reverse mortgage
The 4 best reverse mortgage lenders for 2020
One Reverse Mortgage – Best national option
One Reverse Mortgage is a national solution to reverse mortgages with the power of conventional mortgage powerhouse Quicken Loans behind it. Quicken Loans is noted for its accessibility and the ease of reaching a representative capable of helping you answer questions quickly. In addition to the standard FHA reverse mortgage, Quicken also offers a home equity loan optimizer, or HELO, for those who do not qualify for the FHA HECM due to high home values or other factors. If you qualify for and choose this option, 100% of the loan funds are available at closing.
Quontic Bank – Best digital option
In recent years, Quontic Bank, formerly a regional bank in the northeast, has expanded its digital footprint and does business in all 50 states. Its reverse mortgage options are limited to HECM, meaning you must meet all of the standard requirements for the FHA’s program. As part of the process, Quontic will verify you have adequate assets to cover the necessary fees for the loan, including annual insurance payments, the money needed to maintain the home, and enough to cover property and other taxes. The bank provides easy access to loan officers who can answer the questions of remote customers via phone, e-mail or live chat.
AAG – Best recognized brand
AAG, or American Advisors Group, is the most recognized reverse mortgage lender due to its advertising efforts. The brand clearly explains the different types of reverse mortgages to potential borrowers and provides specialists to help you review the different loans options.
A lump-sum payout is an option that provides 60% of your potential funding in the first year. This is an option that is best used for major unexpected expenses. A line of credit could appeal to you if you have a need for more funds, like a new vehicle purchase or home improvements, and would prefer not to tap into your traditional retirement accounts to pay for it. Much like ORM, AAG also offers an in-house loan known as the jumbo reverse mortgage for properties outside the scope of FHA’s HECM program. The loan lets you tap up to $4 million in equity at a fixed rate. No mortgage insurance is required.
Longbridge – Best online tools
Longbridge Financial, LLC differentiates itself from competitors by offering easy-to-use tools, including a free quote calculator and scenario-based guides to answer the most common questions about reverse mortgages, such as, “What happens when the homeowner can no longer live in the home or dies?” The answer is that the loan must be repaid. In many cases, the home is sold. If it sells for less than the amount owed on the reverse mortgage, the FHA insurance covers the difference, not the heirs. If it sells for more, the lender is paid back, and the estate receives the remainder.
Longbridge also provides a loan option for homes with a higher value along with the common HECM for purchase loan. With a for-purchase loan, you buy a new home with a down payment up to 50% of its purchase price and pay for closing. The HECM covers the balance and provides any remaining funds to you. Going forward, you do not have to make monthly mortgage payments. Many homeowners who choose the option want to relocate to a different climate, move closer to children and other family members or need a home that meets new needs by providing accessibility options and other amenities.
What is a reverse mortgage?
A reverse mortgage is a way to tap into your home equity for cash in retirement. In a best case scenario, it is also part of your long-term financial strategy for retirement and not a decision made when you are strapped for cash. Bocelli said homeowners should start to educate themselves on reverse mortgages sooner rather than later.
“This way, they can fully understand the program and how it may be of benefit to them now or at a later time,” Bocelli said. “Also, so they can understand how it may be implemented early on as part of their overall retirement strategy to provide them with more longevity with their retirement assets, while giving them the ability to remain in their home comfortably.”
After the financial crisis of 2008, the U.S. government altered regulations in the reverse mortgage industry to make loans more sustainable and to protect buyers. Because of this, many aspects of the loan process, including fees, are more controlled across lenders. In addition to interest rates, you must pay a mortgage insurance premium, third-party charges, an origination fee and a servicing fee.
The mortgage insurance premium is a fee on the most popular reverse mortgage type: the FHA-insured reverse mortgage. It is 2% up front when you start your reverse mortgage and then 0.5% annually.
Third-party charges are like closing costs on a traditional mortgage and are your best option for savings. Some items, such as recording fees and mortgage taxes, will be the same from lender to lender and are non-negotiable. However, you may be able to find cheaper appraisal, survey and inspection services than provided in the quoted price. Different lenders may also charge at different levels for credit checks and other services.
Origination fees can vary from lender to lender based on the parameters established by the government. The lender charges the higher amount of $2,500, or 2% of the first $200,000 of home value, and 1% for the amount of value over $200,000. If your home value is greater than $2,500, the HECM origination fee cannot exceed $6,000, according to HUD.
Servicing fees for the loan are capped at $30 monthly for a loan with annual rates and $35 per month for loans with monthly rates.
How should I choose the right reverse mortgage?
Assess your retirement plans and determine which reverse mortgage option, if any, fits with your overall goals. Homeowners with significant assets may find that leaving money in an IRA or other retirement account provides tax benefits. In these instances, a steady stream of monthly income via a reverse mortgage can fund retirement until a lower tax rate is reached on the remaining investments. After you start drawing on traditional retirement accounts, you can use a portion of those funds to pay off the reverse mortgage if you plan to leave the home to family members and would prefer to do so debt-free.
The final word
Reverse mortgages are not for everyone, and new regulations make it more difficult for individuals who cannot meet necessary basic expenses to obtain the mortgages and over leverage themselves. When you do qualify, review all of your options and assess the long-term costs and benefits a reverse mortgage will bring to your life. If you find that you can improve your quality of life in retirement, finance necessary expenditures or make your other retirement savings go further with a reverse mortgage, start reviewing your best options. Ask questions before, during and after your mandated counseling session and develop a plan to meet your annual expenses in advance.