Reverse mortgages come equipped with a variety of product features and payment options designed to accommodate any borrower’s preferences. As shoppers search for the right Home Equity Conversion Mortgage (HECM) for their particular situations, they must also consider the package of costs that will work best for them, according to a recent Forbes article.
In his latest reverse mortgage article published by Forbes, Wade Pfau, professor of retirement income at The American College, and principal at McLean Asset Management, examines the various types of cost combinations available for prospective reverse mortgage borrowers and how they might impact the amount of loan proceeds that can be received.
Whichever cost combination a borrower chooses depends on how he or she plans to use a reverse mortgage, particularly the line of credit option.
“Those seeking to spend the credit quickly will benefit more from a cost package with higher upfront costs and a lower lender’s margin rate,” Pfau writes. “Meanwhile, those seeking to open a line of credit that may go unused for many years could find better opportunities with a package of costs that trades lower upfront costs for a higher lender’s margin rate.”
Pfau provides an overview of the various reverse mortgage costs, including origination fees, servicing fees, the lender’s margin rate and other closing costs associated with the loan. These four “ingredients,” he writes, can be combined into different packages by the lender.
“Which version is best depends on how the reverse mortgage is to be used,” Pfau writes. “When funds will be extracted earlier, it may be worthwhile to pay higher upfront fees coupled with a lower margin rate. However, for the standby line of credit, which may never be tapped, it is beneficial to lean toward a higher margin rate combined with a package for reduced origination and servicing fees.”
Read more at Forbes.
Written by Jason Oliva