Home Equity Conversion Mortgages, or HECMs, are insured and regulated by the federal government. Because these loans are so strictly regulated, many seniors are under the impression that all lenders offer the same experience. While lenders are limited in the fees they are allowed to charge their borrowers, some reverse mortgage lenders offer significantly better service.
What Good Reverse Mortgage Lenders Do for Their Borrowers
The best reverse mortgage lenders do not just lend money, they also educate and support their borrowers throughout the loan process. After contacting a lender, seniors should be given a clear explanation of their different options. The Federal Housing Administration (FHA) currently offers two HECM products: the HECM Standard and the HECM Saver. Seniors who wish to purchase a new principal residence with the proceeds of a reverse mortgage can also take advantage of the HECM for Purchase program. To help seniors choose a beneficial loan product, lenders should explain the costs, benefits, and disadvantages of each loan option.
In addition to explaining a senior’s options, a great lender will also explain the borrower’s responsibilities after getting a loan. After closing the loan, borrowers are expected to have homeowners insurance, continue making important home repairs, and pay their property taxes on time. Borrowers who fail to meet these requirements might be asked to repay their loan early. To eliminate future confusion, lenders should also explain repayment. This includes when the loan must be repaid, and how borrowers or their heirs can repay the loan.
Another sign of a reputable lender is flexibility. An honest lender will always be willing to speak with a borrower’s family and financial advisors. Lenders who discourage borrowers from consulting relatives or other financial professionals might not have the borrower’s best interests at heart. To ensure that seniors are making the right decision, reverse mortgage lenders should also explain the importance of HECM counseling and, if necessary, help seniors prepare for their counseling sessions.
Good Lenders Help Seniors Understand the True Costs of Their Loan
In addition to offering superior service, reputable reverse mortgage lenders are also straightforward about fees and long-term costs. To get a reverse mortgage, borrowers will be expected to pay for an appraisal, closing costs, and an origination fee. Because HECMs are insured by FHA, borrowers are also required to pay for mortgage insurance. Fortunately, to help borrowers avoid paying these costs out-of-pocket, lenders typically finance their fees into the loan.
To make the costs of the loan completely clear reverse mortgage lenders are required to provide seniors with a Total Annual Loan Cost (TALC) disclosure. This disclosure serves two different purposes. First, it helps seniors see their expected interest rate and estimated fees. The TALC disclosure also explains the total cost of getting a reverse mortgage over the life of the loan. Lenders who are unwilling to discuss their fees or explain the costs of the loan should be avoided.
Seniors should also be wary of lenders who provide them with incomplete information or try to force their signature on confusing or incomplete paperwork. Getting a reverse mortgage is an important financial decision, and seniors should not feel pressured to choose a loan that is not entirely right for them. The benefit of choosing a reputable lender is that these professionals do not attempt to deceive or control their borrowers. Instead, they work to support and educate seniors throughout the loan process.