You know that your retirement years are called the “golden years” — but rising costs on a fixed income might make you feel less than shiny. Social Security often doesn’t keep pace with the cost of prescriptions, household maintenance and other living expenses. You may be able to use a reverse mortgage to cope with the ever-increasing cost of living if you’re 62 or older.
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Quick Look – Best Reverse Mortgage Lenders
- AAG: Best for HECMs
- One Reverse Mortgage: Fastest Processing & Best Overall
- Finance of America Reverse: Best for Proprietary Reverse Mortgages
- Longbridge Financial: Best Customer Service
- Liberty Home Equity Solutions: Best for Affordability
- Homebridge: Best for Evaluating your Options
- Reverse Mortgage Funding: Best for Low Closing Costs
What is a Reverse Mortgage?
A reverse mortgage is a loan that you withdraw using your home’s equity, which is the amount of your home you actually own. You can get a reverse mortgage if you’re 62 or older — and if you own your home outright or have considerable equity.
In a traditional mortgage, your lender gives you a loan to purchase your home. You repay the loan over time and your loan balance gets smaller — right?
A reverse mortgage is different. The lender pays you an amount based on the equity you have in your home. For example, let’s say you have a mortgage balance of $20,000 and your home is worth $120,000. You have $100,000 in equity — it’s calculated as the value of your home less the balance of your mortgage.
A reverse mortgage lender loans you a percentage of your equity. You can use the loan to cover living expenses or health care costs. You no longer have to make mortgage payments, which frees up income. You still have to pay property taxes and other expenses to keep your home in good repair. As time goes on, your loan balance increases.
The loan must be repaid when you and your co-borrower (or a non-borrowing spouse, in some cases) die, sell the home or permanently move out of the home. Family members typically sell the house to pay off the reverse mortgage loan when you die.
Types of Reverse Mortgages
There are 3 types of reverse mortgages:
- Home equity conversion mortgage (HECM): HECMs are government-insured mortgages offered through FHA-approved lenders. There is less risk to the lender since the government insures the loan. Lenders are more likely to approve applications when there is less risk. HECMs are the most common type of reverse mortgage, according to the Consumer Financial Protection Bureau (CFPB).
- Proprietary reverse mortgages: These mortgages are offered through private companies and aren’t backed by the government.
- Single-purpose reverse mortgages: State and local agencies offer these mortgages for a single purpose, such as paying your property taxes or making your home more accessible.
How to Prepare for a Reverse Mortgage
In some ways, preparing for a reverse mortgage is similar to preparing for your original mortgage. Think back to when you purchased your home or saved for a house. You set aside money for a down payment and closing costs. A reverse mortgage doesn’t require a down payment but you will have closing costs. You can pay closing costs out of the proceeds of the reverse mortgage, but that lowers the amount you can borrow.
Another question you don’t need to consider with a reverse mortgage is how much house you can afford. Consider how much you want to borrow. You can choose to receive payments as a lump sum, monthly payments or a line of credit. Monthly payments can be for a set period or for as long as you live in your home. You borrow money as you need it with a line of credit. You can also do a combination of monthly payments and a line of credit.
Talk to a counselor from a government-approved housing counseling agency if you think you might want a HECM. Some proprietary reverse mortgages also require you to meet with a counselor.
What to Look for in a Reverse Mortgage Lender
Moving forward with a reverse mortgage is a big decision. You might be surprised to see that national banks like Wells Fargo and Bank of America don’t offer reverse mortgages. Financial service companies that specialize in mortgages offer reverse mortgages, and you might also look into regional banks and credit unions.
Here are a few things to look for in a lender.
- Certification: The National Reverse Mortgage Lenders Association requires its members to adhere to a strict code of ethics — be absolutely sure the lender you choose belongs to this association.
- Expertise: Look for a lender with reverse mortgage experience. Some lenders focus exclusively on reverse mortgages and others include it along with other mortgage financing options. Either type of lender can work, but if you get a sense that your lender doesn’t do reverse mortgages all the time, steer clear.
- Clarity: Does the lender take the time to educate you about reverse mortgages and offer easy-to-digest materials on its website? Or does it use a lot of jargon which creates more confusion for you? Look for a lender that explains terms and concepts in plain language and ensures you’re comfortable with every step of the process.
Tips for Finding the Best Reverse Mortgage
You can maximize your loan amount and minimize stress for your loved ones when the loan needs to be repaid. Take the time to find the best reverse mortgage possible. Here are a few tips:
- Shop around: Contact multiple lenders. It takes time, but even a small difference in interest rates can put more money in your pocket. Contact at least 2 or 3 lenders to ensure you get the best rate.
- Look beyond the interest rate: The interest rate is only part of the story. Lenders have origination fees and ongoing servicing fees. Look at all the fees each lender charges and consider those as well. Ask lenders for the total cost of the mortgage and use that information as an apples-to-apples comparison.
- Take your time: Compare lenders carefully and talk with your housing counselor or trusted loved ones about your options. You don’t need to rush into a decision. Any lender that pressures you should be taken off your list.
The 7 Best Reverse Mortgage Lenders
Here are Benzinga’s choices for the 7 best reverse mortgage lenders on the market. All of these lenders have been thoroughly researched by Benzinga and are members of the NRMLA.
1. AAG: Best for HECMs
AAG is one of the biggest players in the reverse mortgage market.
It’s the top HECM lender in the U.S. and offers a proprietary jumbo reverse mortgage for high-value properties.
AAG also offers refinances if a reverse mortgage isn’t the best option for you.
Try out its reverse mortgage calculator so you know how much you’ll receive if you qualify. You can pre-qualify with AAG online or call and speak to a representative.
2. One Reverse Mortgage: Fastest Processing & Best Overall
One Reverse Mortgage is owned by Quicken Loans®. The company offers services entirely online or by phone.
This is the lender for you if you don’t have time to go to an office. One Reverse Mortgage can also connect you with HUD-approved counselors who work by phone.
One Reverse Mortgage clearly explains the mortgage process on its website.
In addition to fixed-rate and adjustable-rate HECMs, One Reverse Mortgage also offers a proprietary product called HELO (Home Equity Loan Optimizer). HELO is designed for people who don’t qualify for a government-backed reverse mortgage.
HELO has no property restrictions, so high-value homes that don’t qualify for a HECM may qualify for a HELO. You can also access all your funds immediately. Some reverse mortgages limit how much you can take out during the first year.
3. Finance of America Reverse: Best for Proprietary Reverse Mortgages
Finance of America Reverse offers a robust line of proprietary reverse mortgages.
You’ll need to look at proprietary reverse mortgages if your home’s equity exceeds the HECM limit of $726,525.
Finance of America Reverse offers several products with a variety of payout options, including one with a line of credit.
The company also has an A+ rating from the Better Business Bureau.
4. Longbridge Financial: Best for Customer Service
Longbridge Financial’s customer service starts with its easy-to-navigate website.
The company focuses exclusively on reverse mortgages and offers a customer service guarantee.
That guarantee includes a commitment that will confirm whether a reverse mortgage is wrong for you. Longbridge Financial nabbed an A+ rating from the Better Business Bureau.
Customer reviews consistently praise its loan officers.
5. Liberty Home Equity Solutions: Best for Affordability
Liberty Home Equity Solutions has been issuing reverse mortgages since 2003 — it’s one of the most experienced lenders on the market.
Its pricing guarantee may be partly due to the company’s longevity.
Liberty Home will send you a $100 gift card if it can’t match or beat a competitor’s price on a HECM.
Liberty Home also pays $500 of your closing costs if it can’t close your mortgage in 60 days or less.
6. Homebridge: Best for Evaluating Your Options
Homebridge offers a full range of mortgage products, including purchase mortgages, refinancing and renovation products.
You can evaluate your options with a Homebridge mortgage loan originator.
Homebridge representatives can meet with you in person or work with you online — whichever you prefer.
7. Reverse Mortgage Funding: Best for Low Closing Costs
Reverse Mortgage Funding focuses exclusively on reverse mortgages. Its Equity Elite proprietary reverse mortgage product sets the company apart.
This product is available to homeowners as young as 60 in some states.
You may also qualify for lender credits to cover closing costs if you go with an Equity Elite reverse mortgage.
Reverse Mortgage Funding also offers educational resources, including an on-demand webinar.
Do Your Homework First
A reverse mortgage can be an excellent tool to increase your income and decrease your expenses. Take the time to carefully review your options and discuss them with your loved ones. Keep in mind that we’re living longer than ever, and your retirement money might need to last decades. You’ll need to monitor your loan to ensure you have enough income to last.
Be mindful of the drawbacks, too: Your heirs may also need to sell your home to pay off the reverse mortgage balance, which means you may not be able to pass your home to the next generation. Your housing counselor and loan officer can help you review your payout options to help ensure your golden years really are golden.
Frequently Asked Questions
1) Q: How much interest will I pay?
Interest that you will pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.
2) Q: How much should I save for a down payment?
Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first time buyers. Check out the lenders that specialize in making the home buying experience a breeze.
3) Q: How do I get pre-approved?
First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!