STORIES ON LEISURE

< Back to main Stories on Leisure page

Shopping For A Reverse Mortgage
by Dr. David Johnson

When homeowners shop for a traditional mortgage they try to find the best terms available, a process which may be very complicated. There are fixed-rate mortgages, adjustable-rate mortgages, interest-only mortgages, balloon mortgages, jumbo mortgages, and several variations of the above. The interest rate, maturity of the loan, loan costs, and other terms typically vary from mortgage to mortgage and lender to lender. It becomes a difficult task choosing the right mortgage for your specific circumstances.

The good news is that if you are thinking about getting a reverse mortgage there are only three basic types, which makes your decision much simpler. Unfortunately, with only three reverse mortgages, very few lenders who offer them, and with most lenders offering identical products, not a lot of shopping can be done. As a result, there is only a marginal benefit to contacting several different lenders to see which one can give you the ‘best deal’.

The three major types of reverse mortgages are:

1. FHA/HUD Home Equity
   Conversion Mortgage (HECM)
2. Fannie Mae Home Keeper
3. Financial Freedom� Cash
   Account�

The most popular reverse mortgage is the HECM, which accounts for 95% of all reverse mortgages. This option is the most popular because it is FHA insured, is considered the safest reverse mortgage product available, the interest rates are generally lower, and unless you have a high value home, you usually get more money. The only negative to
the HECM is that it has the lowest lending limit of the three products. The lending limit varies by county and is currently $224,500 in Clark County.

The Home Keeper is similar to the HECM but is the least popular of the three products. Fannie Mae backs the Home Keeper just like FHA insures the HECM, interest rates are generally higher than the HECM, and the lending limit is higher. Currently the lending limit is $333,700. The higher lending limit may make this option a better alternative for some higher valued homes.

The Financial Freedom�Cash Account� is a jumbo reverse mortgage product that has virtually no maximum home value or lending limit.

There are three Cash Account� options:

1. Standard Option
2. Zero Point
3. Simply Zero

The Cash Account� is the best alternative for high value homes,
typically those homes whose value exceeds $500,000. Unlike the HECM and Home Keeper, the Zero Point and Simply Zero do not charge an origination fee and the Simply Zero has zero closing costs.