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Home Equity Loan vs. Reverse Mortgage

By: Bill Graves

Reverse Mortgages have been around for almost 20 years now.  In a nutshell they allow homeowners over the age of 62 to tap into a portion of their homes equity.  The loan is paid back when the homeowner sells the home or passes on.

 

One of the biggest deterrents has always been cost.  There were high origination fees, which the lender earned for funding the loan.  There was the service-set-aside fee, which the lender received for servicing the loan.  There is the Mortgage Insurance Premium, which FHA/HUD receives to protect the borrower and lender from any shortfall down the road when the loan is paid off.

 

Regardless of the aforementioned cost close to a  ½ million reverse mortgages have been issued.  And why not… no monthly payment, no income required, no job verification, no credit required and it has an open ended term.

 

Over the past year the cost has been coming down.  First lenders dropped or greatly reduced the origination fee.  Then they reduced or dropped the service fee.  And now the new Saver Product has hit the street and it has virtually eliminated the initial up-front mortgage insurance premium.  Naturally there is a caveat.  The borrower receives less cash out than with the standard product.  However, as a result you save thousands of dollars on the closing cost.

 

This has a number benefits.  Some folks want to pay back some or the entire loan.  The Saver Product makes this easier.  Some folks don’t plan on staying in the home the rest of their lives, again another reason the Saver is attractive.  Lastly, when compared to the cost of a home equity loan the Saver is right there with it.

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