It’s important that you get the best reverse mortgage for you, NOT the Lender.
Reverse mortgages come with multiple options. They may sound confusing on the surface but in reality they are really pretty simple. There are only two interest rate types: fixed or adjustable. Either will require a mortgage insurance premium (MIP) which is a fee charged that guarantees that you will receive expected loan advances.
Let’s take a closer look at the two types of mortgage insurance premiums (MIP) available, the saver or the standard
- The standard MIP is the more expensive of the two. This is calculated at 2% of the home’s appraised value (max claim amount). As an example, if your home is appraised at $175,000, then the upfront MIP cost is $3,500.
- The saver MIP is the less expensive of the two. This is calculated at .01% of the home’s appraised value (max claim amount). Using that same example, if your home is appraised at $175,000, then the upfront MIP cost is $17.50.
The Fixed rate reverse mortgage is pretty basic. It is only available with a lump sum payout. This means that you must take all of the cash you qualify for at closing. The fixed rate is only available under FHA’s HECM Saver program which means extremely low MIP and allows borrowers to use the available cash for any purpose they choose. Fixed rate reverse mortgages usually carry a higher interest rate at origination, but the fixed rate will not adjust as the market changes.
Adjustable rate reverse mortgages allow you to take your cash in several options: line of credit, monthly payments, tenure payments (see below), a lump sum payment or a combination of these. The adjustable rate is available under either the HECM Saver program or the HECM Standard program. Here is a little more detail on the different ways you can take your cash:
- Tenure: Equal monthly payments for as long as you live in your home (primary residence)
- Term: Equal monthly payments for a fixed number of years.
- Line of Credit: A line of credit accessible at your discretion
- Modified Tenure: Combination of smaller fixed monthly payments
- Modified Term: Combination of smaller fixed monthly payment for a fixed number of years, with a line of credit accessible at your discretion.
- Lump Sum: Receive all of your cash at closing.
So you see, reverse mortgages come with multiple options on how you receive your funds at closing but there are only a few options when it comes to the basic product.
Those options again are: fixed vs. adjustable rate and saver vs. standard MIP (which only applies to the adjustable rate. The fixed rate is only available in the saver).
Make sure you discuss your goals and needs with your Reverse Mortgage Banker to help determine which reverse mortgage option(s) is best for you.
Looking for more info? You’re in luck!
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