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.
The 5 best reverse mortgage lenders for 2020
- Quontic Bank – Best digital option
- AAG – Best recognized brand
- Longbridge – Best online tools
- All Reverse Mortgage Inc – Best customer reviews
- Finance of America Reverse – Best private option
|Lender||Sample Interest Rates||Mortgage Types|
Growing line of credit
Term or tenure
Reverse for purchase
|Longbridge||2.949%–4.333%||HECM reverse mortgage
HECM for purchase reverse mortgage
|All Reverse Mortgage Inc||3.31%–6.99%||HECM reverse mortgage
HECM for purchase
|Finance of America Reverse||Not listed||HECM reverse mortgage
HECM for purchase
*Rates accurate as of July 2020
The 5 best reverse mortgage lenders for 2020
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.
All Reverse Mortgage Inc – Best customer reviews
All Reverse Mortgage Inc — also called ARLO — offers a variety of reverse mortgages including HECM’s, jumbo reverse, HECM purchase, proprietary reverse, HomeSafe reverse, Platinum reverse, and more. Using the ARLO calculator on its website, you can get information quickly and easily on what reverse mortgage you may qualify for. If you meet the requirements of a reverse mortgage, you can apply over the phone or online. It can take 30 or more days to close a reverse mortgage with All Reverse Mortgage, which is pretty standard in the industry.
Depending on factors like age, current rates and type of reverse mortgage loan you can expect to receive anywhere from 40% to 60% of your home value. You may choose a line of credit with an adjustable-rate, a HECM (traditional or jumbo), a reverse mortgage for purchase if you’re buying a new home, and if your property exceeds FHA limits, ARLO offers a proprietary reverse mortgage option.
Finance of America Reverse – Best private option
Also in business for 16 years, Finance of America Reverse’s website is user-friendly and thorough, offering loan options to accommodate various life goals you may have. You can then easily review each loan option, including detailed brochures. For example, if you want to unlock the potential in your home’s equity the HECM mortgage option may be for you. This may allow you to achieve goals like paying off your existing mortgage, pay for in-home care, renovate, supplement income, cover medical expenses, stay in the home long-term, and more.
If you are looking for a new home whether to upsize, downsize, or just relocate, the Reverse for Purchase option is available. Finance of America Reverse also offers a HomeSafe option that includes a standard and jumbo reverse mortgage. If you are looking to increase cash flow or leverage your current equity to buy a new home, one of these options may be right for you.
Reverse Mortgage Buying Guide
What is a reverse mortgage?
A reverse mortgage is a loan that cashes in the equity built up in a home, primarily for homeowners over the age of 62. Instead of monthly payments due to the lender, the loaned amount is owed in a lump sum paid when the homeowner passes, sells the home or moves away permanently. There are strict regulations involved with reverse mortgages that prevent the amount owed from being larger than the value of the home when sold by the homeowner or their estate after passing.
How reverse mortgages work
Let’s say you are a homeowner over the age of 62 and your monthly Social Security payments aren’t enough to pay the bills, or you want to help pay for a grandchild’s college. Similar to a home equity loan, a reverse mortgage will cash out the equity built up in the home in one lump sum. Unlike a home equity loan, however, you don’t make monthly payments to repay the loan. The loan is repaid when the house is sold, you pass away or move permanently away from the house, like to an assisted living facility.
Let’s say you have a $150,000 mortgage that you’ve paid off down to $40,000. Assuming that the house’s value is also $150,000, you can access up to the remaining $110,000 in a reverse mortgage loan. No monthly payments need to be made to repay the reverse mortgage loan, but interest is charged on the borrowed amount over the life of the loan. Then, let’s say you sell the home to move to an assisted living center or move in with family members, that’s when the loan payment is due.
If the house went up in value and you sold it for $160,000, part of the sale must go toward paying off the remainder of your original mortgage as well as the money you borrowed in your reverse mortgage. If the house went down in value, there are federal regulations in place to protect the borrower from owing more than the house’s worth in a sale.
Reverse mortgage vs. home equity loan
A reverse mortgage and home equity loan are two very similar home lending products. Both require homeownership and equity built up in the home to borrow. However, while home equity loans require monthly payments immediately after funds are dispersed, reverse mortgages do not have monthly payments attached to the terms. Instead, the funds borrowed in a reverse mortgage are due for repayment when the home is sold or the owner passes away, in which case the estate will be responsible for paying back the loan.
Types of reverse mortgages
Just as there are multiple types of mortgage loans at the beginning of the homeownership journey, there are different types of reverse mortgage available to homeowners.
- Lump sum: the funds from the loan are available all at once and charged a fixed interest rate.
- Annuity/equal payments: when the reverse mortgage is agreed upon, the lender will send the funds to the borrower in equal monthly payments.
- Term payments: the funds are sent to the borrower in equal monthly payments over a certain period of time, such as 10 or 15 years.
- Line of credit: similar to a home equity line of credit, the funds from the reverse mortgage are available to the borrower to draw upon as needed, and only what is borrowed will be charged interest and need paid back.
- Term and line of credit: this is a hybrid between term payments and line of credit. Monthly payments are made to the borrower over a set term (such as 10 or 15 years), but more funds are available to draw upon if needed.
- Equal payments and line of credit: similar to term payments and line of credit, equal monthly payments based on how much is borrowed are made to the borrower, plus additional funds available to draw upon if needed.
How to choose the best reverse mortgage for you
Because there are many different types of reverse mortgages and even more types of borrower financial situations, it can be difficult to determine which is the best reverse mortgage for you. However, simply addressing your needs, what you want from a reverse mortgage and how you expect your financial status to change.
- Determine if a reverse mortgage is the right financial decision to begin with. You should expect to live in the house for another 10 to 15 years to reap the full benefits of the financial transaction. Furthermore, you should have a considerable amount of equity built up in the house.
- Determine which type of reverse mortgage you need. If you’re using the funds to supplement Social Security payments, then a term or annuity payments may be the best bet. On the other hand, if you’re using the funds to help a family member with a down payment on a house or to pay for college education, a lump sum reverse mortgage is a better option.
- Find and do research on reverse mortgage lenders. Although we’ve covered a few of the top picks in reverse mortgage lending, there are some illegitimate lenders out there that only want to take advantage of older homeowners who do not know any better.
- Pick a reverse mortgage lender that offers reasonable interest rates and provides the type of reverse mortgage that you need. The lender should help you in every step of the way, from home appraisal to closing on the loan. If the lender doesn’t offer this type of assistance to borrowers, it may not be worth it to do business with them.
Reverse mortgage FAQs
Are payments from a reverse mortgage taxed?
In short, no. Because it’s still a loan and not a sale or income wages, the IRS does not tax the monthly payments from a reverse mortgage.
What are the fees for a reverse mortgage?
Generally, borrowers will have to pay fees upfront for a reverse mortgage. These are typically origination fees, insurance premiums, mortgage insurance and lending fees. However, the government does limit how much lenders can charge borrowers in a reverse mortgage.
What if the sale of the house is less than what is owed?
Unfortunately for the lender, that’s part of the risk of lending — generally, lenders believe that the house will increase in value, making it possible for the borrower to pay back the loan. However, federal regulations dictate that in a reverse mortgage, the estate or borrower is not responsible for the difference between the sale of the house and the loan; the lender must absorb that loss.
Too long, didn’t read?
Similar to a home equity loan, a reverse mortgage allows homeowners over the age of 62 to cash in on the equity built up in a home. The funds can be available in one lump sum or spread out in monthly payments over multiple years. When the house is sold or the homeowner dies is when the loan is repaid.
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We welcome your feedback on this article and would love to hear about your experience with the reverse mortgage lenders we recommend. Contact us at email@example.com with comments or questions.