Having made the decision to obtain an HECM reverse mortgage, many prospective borrowers deliberately do not shop around. They figure that because it’s a standardized product insured by a government agency, therefore every lender must offer identical terms at identical rates. In fact, nothing could be further from the truth. No Closing Cost Reverse Mortgages represent a case in point.
In response to charges that due to high upfront costs, reverse mortgages were prohibitively expensive, many lenders engaged in a conscious effort to lower the costs. Given that an interest rate floor is determined by the FHA, there was/is only so much they could do. In some cases, they paid the upfront insurance premium for borrowers. In other cases, they eliminated their origination fees. Still other lenders agreed to pay certain third party closing costs on behalf of borrowers.
Of course, lenders must have some kind of financial incentive for reducing costs, especially since the industry has not (yet) collectively resolved to lower costs together. In fact, some lenders stipulate that they will only waive their closing costs if the loan amount exceeds a certain value. No Closing Cost proprietary reverse mortgages are especially likely to contain such terms. Instead, they might require borrowers to roll the savings into the reverse mortgage, and/or take all of the cash upfront. Then again, it’s easy for lenders to manage the risk with reverse mortgages (especially given the majority are FHA-insured), and profits from interest are more than enough to offset lost revenue from lower upfront costs.
A few years ago, a handful of pioneering lenders led the way in cutting their closing costs. While the collapse of the housing bubble spurred a reassessment of risk management practices, many lenders are once again examining how they can be more competitive. Especially since the HECM Saver (which doesn’t carry an upfront insurance premium) was introduced, lenders have little choice but to reduce closing costs if they want to offer a less expensive product.
In short, before committing to a specific lender, make sure you do some research. Even if you have already applied and are waist-deep in the process, it doesn’t hurt to ask your lender for a discount. Remember that until you sign the mortgage contract (and even then you still have a 3-Day Right of Rescission), you are under no obligation to obtain the reverse mortgage. Make sure you take advantage of that freedom to obtain the best terms/rates that are available.