Increased competition, the maturation of the reverse mortgage industry, and its transformation into a commodity product have combined make reverse mortgages less expensive than ever. As a potential borrower, there are a handful of developments that you should be aware of in order to ensure that you get the best deal possible.

First, the Federal Housing Administration (FHA) recently unveiled a new version of its popular Home Equity Conversion Mortgage (HECM) designed to make the reverse mortgage more affordable. Known as the HECM Saver, this option comes without the cost of the upfront insurance premium (a savings of $5000+), but has a lower principal limit. For those that are concerned with value and with smaller cash needs, the HECM Saver represents a good option.

Second, some lenders have begun to pay the FHA insurance premiums on behalf of their borrowers, since they also benefit from the decreased risk. (However, since the annual insurance premium was raised from .5% to 1.25% for all FHA reverse mortgages, it’s unclear if lenders will continue to offer this freebie). In addition, many lenders are eliminating the Service Fee Set Aside (SFSA), in which the $30 Service Fee that must be paid monthly for as long as the reverse mortgage remains outstanding is paid upfront and rolled into the mortgage.

Finally, some lenders have begun to lower their origination fees. As a result, a reverse mortgage today can be obtained for as little as $1,200, plus ~$3000 in other assorted third party closing costs. The result of all of these changes is that if a borrower is lucky, a reverse mortgage won’t cost more than a conventional mortgage. In practice, these savings are usually rolled into the reverse mortgage in order to increase the size of the loan. Still, as a borrower, you can choose to realize these savings as actual savings by simply borrowing the same amount.

It goes without saying that if you want the best deal, you need to speak to multiple lenders. This might sound unnecessary since all offer essentially identical loans with identical interest rates and identical terms. As I explained above, however, some of them might be willing to work a little harder for your business. It doesn’t hurt to ask prospective lenders to match the discounts offered by other lenders.

Remember: the HECM reverse mortgage is a standardized product insured by the FHA, and you would be foolish to pay more for it than you have to.

Have Feedback on This Article?