Reverse Mortgage Interest Rates 2021

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Yet fewer than 1% of eligible households have taken out a reverse mortgage, according to a Brookings Institution report. Common knocks against these loans: high fees and the notion that only desperate older Americans turn to reverse mortgages, as a last resort.

But given the current quest for greater economic security in retirement, it seems to me that reverse mortgages should be more than a niche product. That’s why I filed away a webinar headline from late last March with the title: “Highly respected economist changes his view of reverse mortgages.”

The convert was Laurence Kotlikoff, a noted Boston University economics professor who’s an expert on personal finance and retirement planning, president of the software-driven personal financial planning company MaxiFi and something of a provocateur. I’ve talked to Kotlikoff over the years and am a fan.

So, I asked him: Are reverse mortgages about to go mainstream?

“I went from not liking them to thinking they aren’t as bad as I thought,” he told me.

But not for long. “Then I looked more carefully with our software, and it got me back to not thinking favorably about reverse mortgages,” Kotlikoff said. “It’s a complicated product to get your brain around. If you couldn’t come up any other option to stay in the home, then use a reverse mortgage.”

The Complete Guide To Reverse Mortgage Interest Rates And Fees

Many people are concerned about the costs associated with a Reverse Mortgage, as well as the impact interest rates have on both how much can be borrowed now and the future balance owed.

However,

• if you want or need equity from your home either now or perhaps during an emergency,
• are not willing to relocate to a smaller home,
• dont want to or are unable to face regular loan payments, and
• are comfortable reducing the size of your estate left to your heirs

then the upfront costs of a Reverse Mortgage should not be a significant issue.

Additionally, understanding how interest rates as well as home appreciation impact future home equity can help alleviate concerns .

Reverse Mortgage fees are generally only a disadvantage if you intend on moving out of the house in a short period of time. While Reverse Mortgage interest rates and fees can seem high and do indeed amount to a significant sum, the costs are not a burden to the homeowner since they are usually financed by the Reverse Mortgage itself .

In this article, we will help you to understand:

To help explain these details, we created an example of a fairly typical Reverse Mortgage loan. This example shows the Reverse Mortgage loan amounts, charges, and interest rates for a 70-year-old retiree, with a $300,000 house and a $50,000 mortgage.

After reviewing this article, use a Reverse Mortgage Calculator to see how much money you could receive from a Reverse Mortgage on your own home.

Why We Recommend Quontic Bank

Quontic Bank stands out for us because it has a long history as a brick-and-mortar institution, offering many different types of financial products, including personal banking. Though Quontic has originated fewer reverse mortgages in 2022 than the other lenders we have covered thus far, the customer service environment that this lender can offer surpasses many others especially those that do business only online or over the phone. Quontic has locations all over the country where they service reverse mortgage loans, student loans, traditional mortgages, and many other products.

Consumers have reviewed Quontic very positively on sites like BBB.org and Lending Tree, like Bill I. in Long Island, who stated, I am not one to write reviews but I would be remiss if I did not praise the work of Quontic Bank in general and in particular, Michael B****** and his staff on Long Island . In helping us to buy our house, they went out of their way to be courteous, helpful, and creative. Even when we threw them a few late changes, they never complained but simply found a way for things to work.

What Customers Are Saying

Client Testimonials

Texas Lending made us feel uncomfortable with actions and narrative going on so we withdrew. A third try this summer gave us Quontic Bank and Megan Hardin. Our first conversation with Megan gave us a good feeling that she is someone who understands what weve been going through and would do all she could do to refinance our home.

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Adjustable Rates Offer Greater Flexibility

The adjustable-rate programs do allow you more flexibility in how you can receive your funds. The first option would be a cash lump sum. This is not advised on the adjustable product as a cash lump sum request is usually associated with fixed interest rates, however it is available.

The second option would be a line of credit. The HECM line of credit is not the same as the Home equity Lines of Credit or lines of credit that you can get at your local bank. The Reverse Mortgage line of credit funds grow based on the unused portion of your line and those funds cannot be frozen or lowered arbitrarily as the banks can, and have done, recently on the HELOCs.

This means that the line of credit grows based on the interest rate applied to the unused portion of your line. In other words, using that same $100,000 line we had above, if you used $45,000 to pay off an existing lien and for your closing costs, you would have $55,000 left on your line. For as long as you did not use these funds your line would grow by the same rate as your interest plus your MIP renewal rate on the loan.

If your interest rate was currently 5% and your MIP renewal was .5%, your line would grow at 5.5%. That would be roughly $3,025 in the first year . The credit line growth is not interest anyone is paying you. It is a line of credit increase and if you never use the money, you never accrued any interest owing on the growth.

The third option would be a payment plan.

Costs Of A Reverse Mortgage

Costs and fees that come with a reverse mortgage contract fall into two main categories: Up-front costs paid at closing and ongoing costs to be paid at the end of the loans term. No monthly or yearly payments are required with a reverse mortgage, making this type of loan ideal for people who would benefit from removing monthly mortgage payments from their budget.

Some reverse mortgage expenses, such as closing costs and origination fees, may be rolled into the available loan amount as an ongoing fee at the borrowers discretion. However, most ongoing costs do accrue interest as part of the outstanding loan amount, and because HECM interest is compounded annually, some borrowers choose to pay whatever they can afford up front. Some also choose to make prepayments on their loan, called points purchasing, in order to pay less interest throughout the life of their reverse mortgage.

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Best Reverse Mortgage Companies Of 2022

Samantha Sharf25 min read

Consistently had the lowest interest rates across 2021

HECM, HECM for purchase, jumbo loans

One of the biggest originators of reverse mortgages in the U.S.

Standard HECM, HECM for Purchase, Reverse mortgage Refinance, Single-Purpose Reverse Mortgage, Proprietary Reverse Mortgage

Highly rated by past customers and has an A+ rating from the Better Business Bureau

HECM, HECM for purchase, jumbo loans

Offers reverse mortgages, as well as other home equity products and retirement solutions

HECM, HECM for purchase, jumbo loans, Equity Avail retirement mortgage, home-sharing

Offers free reverse mortgage quotes along with a wealth of educational resources for potential lenders

Equitable Bank Flex Flex Plus And Flex Lite

Equitable Bank offers three different types of reverse mortgages: Flex, Flex PLUS, and Flex Lite. Each has different eligibility requirements or maximum lending limits. The Reverse Mortgage Flex is Equitable Bank’s original reverse mortgage and is suitable for most homeowners looking for a reverse mortgage.

The Flex Lite is for homeowners that might not want to borrow as much money. In return for a lower borrowing limit, Flex Lite borrowers will have a lower interest rate, with them currently being the best reverse mortgage rates in Canada. However, Flex Lite also only allows for a single lump-sum advance at the beginning of your term, which means that you wont be able to schedule regular advances. For homeowners that want a higher borrowing limit, the Flex PLUS reverse mortgage grants a higher maximum limit but comes with a higher reverse mortgage rate and age requirement.

To learn more about Equitable Bank reverse mortgages, visit ourreverse mortgagepage.

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Changes In Reverse Mortgage Loan Limits For 2019

Every year, the Federal Housing Administration sets lending limits on all FHA loans, including HECMs.

In December 2018, the Department of Housing and Urban Development announced via Mortgagee Letter 2018-12 that the loan limit for HECMs was increasing for the third year in a row.

This loan limit is referred to as the maximum claim amount, or MCA, and is the maximum dollar amount FHA will insure for a HECM reverse mortgage. The MCA is equal to the appraised value of your property, or the current FHA lending limitwhichever is less.

Under these new HUD reverse mortgage changes, borrowers can make a maximum claim amount of $765,600 for the 2020 calendar year, raising it more than $39,000 from $ 726,525 in 2019.

This means that even if your home is appraised above $765,600 this cap is the maximum amount of equity that can be considered for your reverse mortgage.

These figures are calculated by 150 percent of the Federal Housing Finance Agency conforming loan limits for Fannie Mae and Freddie Mac, which were recently raised to $484,350.

HUD also specified that the new limit amount is applicable to Freddie Macs special exception areas, which includes Alaska, Hawaii, Guam, and the Virgin Islands.

The new reverse mortgage rules on lending limits take effect for loans with case numbers assigned on or after January 1, 2019, through December 31, 2019.

Variable Rate Reverse Mortgages

The less popular, but oftentimes the more flexible option, is the variable rate. Just as the fixed rate is fixed for the loan period, a variable rate varies throughout the loan period. There are pros and cons to variable rate reverse mortgages:

• They come with more disbursement options then a fixed rate loan. Borrowers may choose between a line of credit, monthly payments, a lump sum, or a combination of the three.
• Interest is only charged on funds that have been withdrawn. This means that, if you have a line of credit that you rarely use, you will only be charged interest on the amount withdrawn.
• Unused lines of credit may also grow with time, allowing the borrower even more flexibility in the amount available for them to borrow.

In general, variable rates are best for borrowers who plan to use their reverse mortgage funds over time, or in rare instances. In this way, borrowers may use it to add to their existing fixed income every month, to supplement their other retirement accounts, or as a stand by account so money is readily available in the case of an emergency.

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How Much Does A Reverse Mortgage Cost

The reverse mortgage interest rate and the closing and administrative cost are added together to determine the annual percentage rate, known as the APR. The APR is calculated by determining what the total interest cost would be over a five-year period, then adding the closing fee, and turning that total cost into an annual rate.

Lets look at an example of how the APR is calculated for a reverse mortgage.

Reverse mortgage interest rates do not affect how much money we will lend to you. For more information on what determines how much CHIP money we will lend to you, check our Reverse Mortgage Calculator. There are a few factors, including your home equity, age and location.

Types Of Reverse Mortgages

There are three types of reverse mortgages: Home Equity Conversion Mortgages , proprietary reverse mortgages and single-purpose reverse mortgages.

Heres how those differ:

• HECMs: HECMs are reverse mortgages that are insured by the federal government specifically the Federal Housing Administration and issued by FHA-approved lenders. There are also HECMs for purchase government-backed loans designed solely for purchasing a home versus leveraging the equity in one you already own. They typically require down payments between 29% and 63%.
• Proprietary reverse mortgages: These are private mortgage loans that are unique to the lender offering them. Some lenders call them jumbo reverse mortgages, as they usually have higher limits than HECMs and can be used to cover high-value homes . These are not government-backed, so they typically have higher interest rates.
• Single-purpose reverse mortgages: The loan proceeds from single-purpose reverse mortgages can only be used toward one specific purpose like covering home improvements or paying property taxes, for example. Single-purpose reverse mortgage programs are typically offered by nonprofit organizations, as well as state and local governments.

Reverse mortgages can also come with either an adjustable or fixed interest rate. With an adjustable rate, your interest rate can change over time. Fixed rate loans have a consistent rate for the entire loan term.

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What Are The Alternatives To A Reverse Mortgage

The most obvious alternative to a reverse mortgage is simply for a senior to sell their home and downsize to a cheaper property. This, of course, isnt practical in many cases.

Seniors should also consider lower-interest options, like a Home Equity Line of Credit .

HELOCs come with an interest rate thats usually 1.50 to 2.00 percentage points less and generally allow you to withdraw up to 65-80% of the value of your home.

The challenge with HELOCs is that theyre harder to qualify for, particularly for seniors on a fixed income. Theres also a chance the lender will freeze your HELOC borrowing if a spouse dies and/or you miss a payment and/or you never make any principal payments.

Who Should Consider A Reverse Mortgage

Reverse mortgages are best for seniors whose circumstances make this type of loan as low risk as possible and for those who have a specific financial goal in mind. But there are definitely risks to procuring any kind of debt product, even for people who believe they are currently in a low-risk position.

For example, if there is a financial emergency that renders you incapable of keeping up with property taxes and home insurance, your home could go into foreclosure under a reverse mortgage. Furthermore, for seniors who use a reverse to consolidate debt, there is also the risk that they will build up further debt thereafter and end up in even worse shape than before. There are many cases where options other than a reverse mortgage should be considered, so if you or a loved one is considering this type of loan, we recommend that you first read this article from ConsumerFinance.gov to learn more about the risks, and we recommend that you get in touch with a financial advisor or HUD counselor to discuss your financial picture.

The following are questions that all reverse mortgage borrowers should ask themselves before signing a contract.

How much money are you prepared to lose on the eventual sale of your home to finance your immediate needs?

Is there another way for you to meet your current financial goals that may be cheaper?

Could it be better for you to wait to use your equity should a financial emergency arise?

Are you on a fixed income with limited or no other assets?

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Latest News In Reverse Mortgages And Mortgage Lending

• As higher mortgage rates make refinancing more expensive, more homeowners may turn to reverse mortgages to tap their home equity. Learn about how reverse mortgage loans work and their pros and cons to see if this type of loan is right for you.
• The Department of Housing and Urban Development raised the HECM limits the maximum loan amount borrowers can receive to $970,800 in 2022. Thats up from $822,375 in 2021 and $765,600 in 2020.
• Quicken Loans paused operations on its reverse mortgage lending arm, One Reverse Mortgage, in early 2020. At the time, One Reverse was one of the largest reverse mortgage lenders by volume.
• PHH/Ocwen renamed its reverse mortgage lending brand Liberty Reverse Mortgage in early 2020. The company remains one of the largest originators of reverse mortgage loans.
• According to the 2021 Consumer Response Report from the CFPB, only 1% of the lending-related complaints it received in 2021 involved reverse mortgages. However, the number of complaints has trended upward in recent months.