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A reverse mortgage is a special type of home loan that allows homeowners 62 and older who have paid off all or most of their mortgage to withdraw some of their home’s equity and convert it into cash.
When evaluating the costs of a against other potential retirement strategies, you’ll want to look at Home Equity Conversion Mortgages, or HECMs, in particular. HECMs account for nearly all reverse mortgage loans in the U.S. and are insured by the Federal Housing Administration.
Reverse mortgages differ from other types of home equity loans in a number of ways, one of which is higher costs. Fees will include mortgage insurance premiums, both initial and annual; third-party fees for closing costs; a loan origination fee, capped at $6,000; and a loan servicing fee.
It’s also worth noting that reverse tend to be higher than traditional home loans, and will vary depending on how much you borrow, how you withdraw your proceeds, the home’s appraised value and your credit profile, among other factors.
To get to the bottom of reverse mortgage costs, we asked two experts to weigh in: Dan Hultquist, co-chair of the education committee at the National Reverse Mortgage Lenders Association, and Paul Fiore, executive vice president of retail lending at American Advisors Group.
Here are their insights on HECM fees, broken down by upfront and ongoing costs:
The old way of thinking about reverse mortgages as a “last resort” has shifted in recent years, Fiore says. You have multiple options to tap into your home’s equity with a reverse mortgage while living in the house for years to come.
“A lot of people could really benefit from it, but they need to find someone who knows the products,” Fiore says, adding that anyone thinking about a reverse mortgage should search the for a member lender to work with.
If you think a reverse mortgage might be right for you, contact a to enroll in counseling, or call HUD toll-free at 800-569-4287 to learn more. If you decide to apply for a reverse mortgage, contact an that can help.
Updated Oct. 02, 2017
Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: . Twitter: .