Kiplinger: Reverse Mortgages Among High-Cost Retirement Options

Reverse mortgages, while marketed nationally by celebrities with strong senior appeal, are not without some serious cautions, writes Kiplinger in an article this week about long-term care insurance, annuities and reverse mortgages. Kiplinger counts the three products among “high-cost financial products” for retirees, noting the 2% upfront fee for federally-insured Home Equity Conversion Mortgages, origination fees and closing costs associated with the loans.

The article seeks input from National Reverse Mortgage Lenders Association President and CEO Peter Bell as well as the Center for Responsible Lending, and a borrower.

Kiplinger writes: 

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…Reverse mortgages are expensive. Although fees have come down, reverse mortgages are still a costly source of cash. The most common reverse mortgage, the federally insured Home Equity Conversion Mortgage (HECM), charges an initial 2% insurance premium on the full value of the home, which guarantees that you will receive expected loan advances. That means you would pay a premium of $8,000 on a home valued at $400,000, no matter how much you borrow. Lenders that offer HECM loans are also allowed to charge an origination fee ranging from $2,500 to $6,000, depending on the appraised value of your home. And you’ll pay closing costs that typically include an appraisal, title search and other fees, along with servicing fees of up to $35 a month.
The HECM Saver, available since 2010, charges an initial insurance premium of just 0.01% of the home’s value. However, the amount you can borrow is much lower than it is for the standard HECM, and the interest rate is higher.

Because fees are so high, you should explore other sources of funds before taking out a reverse mortgage, says Susanna Montezemolo, vice-president of federal affairs for the Center for Responsible Lending, in Washington, D.C. A traditional cash-out refinancing or home equity line of credit is less costly, although retirees who are living on a fixed income may have trouble meeting post-2008 lending standards. Tapping your savings is another alternative. “I know some people are loath to go into retirement savings, but their home is their savings as well,” Montezemolo says.

You could lose your home. Even though you don’t have to make payments on a reverse mortgage, you’re still responsible for homeowners insurance, property taxes and maintenance. As of last February, more than 9% of reverse-mortgage borrowers were at risk of foreclosure because they had fallen behind on tax and insurance bills, reports the CFPB….

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Written by Elizabeth Ecker

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  • Perhaps it is time that rather than wearing a dunce cap in financial matters, Kiplinger actually do research into the use of HECMs as proposed by the Sacks brothers and Dr. Salter and Harold Evensky.

    Kiplinger is not the talking heads on morning TV shows or attorneys who know little about finances.  This is Kiplinger which charges a fee for its publications.  The author does not seem to able to stratify the senior population by economic situation.  The author seems overwhelmed by the unsophisticated arguments of obvious detractors.

    Kiplinger either needs to do its homework or “get a life.”  It is letting down its readers in a field it is supposed to be experts in, not the court jester. 

    In words emulating the great Jim Cramer of CNBC fame, when it comes to Kiplinger providing insight into HECMs, “they are useless.  In fact when it comes to reverse mortgages they are worse than useless.  They will not even do basic homework in their own field.  What kind of clowns are these guys?  And they are selling their expertise?  What expertise????  You have got to be kiddin’.”

  • When was the last time we had a servicing fee? I swear it seems most of these articles have been written 4 years ago and thet just keep regurgitating them on the unknowing public.
    This must be “Write and Article About Reverse Mortgage’s Week” as this is the 3rd one I have seen!

  • The battle with the media continues. 

    Losing your home because you don’t pay property taxes is more likely without a reverse mortgage than with one.  But FHA does need to issue related underwriting guidelines.

    Traditional mortgages and HELOCs have a higher likelihood of foreclosure than a reverse mortgage because a monthly payment must be made.

  • Last time I checked a  free and clear homeowner could lose a home due to taxes and insurance issues. When did it become a reverse mortage  issue,  .Paying taxes and insurance are a normal for homeowners hello! I think the media is still stuck in the , the family should get the home  passed on free and clear instead of realizing times are different and for senoirs . It is in most cases the best options for seniors who want to age in place and the fixed income is not enough to live on. Please do your job right media ! RESEARCH and INTERVIEW real CLIENTS!

    • Dmondragon,

      Please stop your nonsensical arguments.

      Since when could any homeowner who owns his/her own home “free and clear” and is not part of a HOA lose their home over not paying homeowners insurance?  Please provide a single example of what you claim you checked out.  I personally do not believe you have ever checked that out, period.

      Your argument is not only irrational, illogical, and just plain wrong but reflects poorly on your peers.  

      Please calm down, think before you write, and review what you write before you post.  Perhaps at that point you might write something which does not read like someone who should be doubted at face and has no idea what is required in homeownership and what is not.

  • Mr. Jackson,

    Are you sure “… a  free and clear homeowner could lose a home due to taxes and insurance issues.”  Insurance, really?  These kind of arguments make us look like we have never taken Real Estate Principles or Real Estate Law.

    I like good arguments but that one makes us all look ridiculous.

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