What is the Impact of Recently Reduced Fees on Reverse Mortgages?

By Amitesh Kumar

The latest news concerning real estate is that mortgage lenders have slashed the fees associated with reverse mortgages - one of the options available for home owners to continue to live in their homes and still cash their equity on it. In the present scenario of foreclosure crisis, and home owners forfeiting their homes, this is welcome news. But how far the home owners can be benefited and what would be the impact? Let us see.

First of all - what is a reverse mortgage? This is actually a loan you can borrow against your home property, but you will not be required to pay it back until such time you live in that home. But it is not free money either. The loan becomes payable only in the event of you cease to live in that home - for reasons of selling your home; permanently move out elsewhere; or die.
In other words, the home owner is able to convert the value of the home with a reverse mortgage. The ownership may be in full or part in the said property. The loan amount in cash may be paid - as a lump-sum amount once; regular monthly cash payments; or as a “credit line” account giving you the opportunity as you wish, to draw how and when you want the cash to be paid to you.

Another important feature is, to ensure that it does not become a debt, the outstanding balance of the loan will remain always lesser than the market value of the home. Supposing the value of the home goes below the outstanding balance, there is a safety feature that the home owner will not be forced to move out or sell off the home property.

Then what is the benefit for mortgage lenders in this? Basically the lender gains an equity share of the property, if and when the property is sold. Their capital is secure and earning interest, since the borrower-home owner in this case has substantial equity in their homes and there is no question of default in repayment.

Who are qualified to avail? Home owners aged 62 and above are only eligible to engage in reverse mortgage of their homes, used as their principal residence. Until recently, reverse mortgages were considered as an expensive proposition for the reason that lenders were charging steep upfront fees and service charges including closing costs. Now that the demand has gone down; lenders are keen in generating more business in the present gloomy real estate market; and this product is profitable for them without the fear of delinquency, many of the lenders, including Wells Fargo and Bank of America, have either reduced or totally eliminated the origination fees and servicing fees. Many lenders have reduced reverse mortgage interest rates also.

No question - the home owners can save a lot by these reductions. Even by a simple arithmetic - in origination fees charged at 2% of the home value which can go up to a maximum of $6,000; servicing fees at the rate of $35 a month, working out to $420 a year; for a stay of 10 years at your home your saving will be a good $10,000 or more.

The million dollar question is - how far these recent reductions benefit majority home owners? The qualification standards are stiff - only people nearing retirement at the age 62 and above are eligible; many of them are underwater with their home values gone down below the mortgage balance; and so there will be less inclination by people to avail reverse mortgages afresh.

Amitesh Kumar, expert author of real estate market, thrives on writing for different niches. For Revitalizing the US Real Estate Market One Property at a Time then better to visit here

Related posts:

1. Reverse Mortgages With Lower Fees Now - Keeping Your Home By Juhani Tontti Some lenders in the reverse mortgages market...
2. Reverse Annuity Mortgages - Potential Pitfalls You Need to Be Aware Of By George Kanakis Many seniors consider reverse annuity mortgages (RAMs)...

Related posts brought to you by Yet Another Related Posts Plugin.