Reverse Mortgage Fees Reduced By 95%

From Clark Howard.com

Reverse mortgage fees reduced by 95%

Reverse mortgage fees have been reduced in the industry, which now makes this usually high-cost option possibly more viable for senior homeowners.

A little background for those who aren't familiar with reverse mortgages. Reverse mortgages can be done by people who own their homes free and clear (or close to it) and need money to live each month. Traditionally, this has been seniors who aren't getting enough from Social Security to meet their monthly bills.

With a reverse mortgage, the bank pays you each month and gets the equity in your home over time. It's something that's appealed to people who are "house rich, cash poor."

The problem with reverse mortgages, however, has been that the fees have been way too high. While you might pay fees of up to 1.5 percent on a typical refinance, a reverse mortgage in the past could easily come with fees of up to 10 percent.

Now the Federal Housing Administration -- the main player behind the scenes for reverse mortgages -- has lowered the fees by 95 percent. That means the fees will be next to nothing. There remains an ongoing insurance fee of a little over one percent annually that you pay to cover the event that you might live a lot longer than they expect.

So the great news is that the huge upfront costs may not be part of the picture when you go to shop. Why "may not" instead of "will not"? Because there is no provision in new rules that prevents a lender from cheating senior citizens. They can front the loan and, instead of passing the savings on to you, they can pile on junk fee after junk fee.

If you're in the market for a reverse mortgage, you need to do your homework beforehand. Clark recommends three steps:

• Thoroughly review the lengthy reverse mortgage guide put out by AARP (regardless of what you think about their politics.)
• Consult Reverse.org for a shortlist of reverse mortgage pros and cons.
• Check with multiple lenders. This the best way to protect yourself from those who would try to fleece you.

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