Reverse Mortgage Pros and Cons: Understanding the Details

Reverse Mortgage Pros and Cons: Considering a reverse equity loan to get money out of your house? These loans can be complicated but you don't have to be afraid. Just make sure you do enough research to understand at least the basics so you can ask good questions when you finally do talk with a Reverse Mortgage Specialist.

What you will pay

Besides interest, getting a reverse mortgage typically involves four types of fees:

• An origination fee



• Third-party closing costs



• Mortgage insurance premiums



• A monthly servicing fee

You can generally finance these costs as part of your loan by having them deducted from the loan proceeds. A useful reference for comparing the cost—including interest—of different reverse mortgage programs is the Total Annual Loan Cost (TALC), which expresses all of the loan's various costs as an annual percentage. This formula serves a purpose similar to that of the Annual Percentage Rate (APR) that's often used to compare forward mortgages.

There is also a fee for the required HUD counseling service, which is not included in the TALC estimate. This fee is paid up-front to the counseling agency and cannot be financed as part of the loan. Depending on the type of reverse mortgage you get, you may also have a choice of having the lender pay the fee or paying it as part of the loan proceeds.

Choosing your payment plan

Reverse mortgages are available with fixed-rate and variable-rate options. How you receive funds from your reverse mortgage depends on which rate option you select:

• A fixed-rate reverse mortgage disburses funds in a lump sum to cover large expenses, such as paying off an existing mortgage or other debts.



• A variable-rate reverse mortgage offers access to the highest allowed amount of equity, offers choices for an immediate advance of funds, and provides several disbursement options:
  
  
  
  
  
  • Monthly installments to supplement income for a predetermined period
  
  
  
  • As a line of credit to draw on as necessary
  
  
  
  • In a lump sum to meet large or immediate needs
  
  
  
  • A combination of these options
  
  
  
  
  
  



• Borrowers can change their disbursement plans as many times as they wish.

Choosing your loan type

Whether you select a reverse mortgages with a fixed or variable interest rate depends on your disbursement preferences, as well as your sensitivity to interest-rate fluctuations:

• A fixed-rate offers the stability and security of a consistent interest rate that isn't subject to market fluctuations, but provides limited disbursement options.



• A variable-rate provides flexibility in choosing rate adjustments and pay-out options

You can select a variable-rate option that adjusts on an annual or monthly basis.

• Annual rate adjustments are usually capped at two points per year and five points over the life of the loan. On the other hand, they provide a lower maximum loan amount.



• Monthly rate adjustments feature a larger maximum loan amount, but they usually have no annual adjustment cap, and instead are capped at ten points over the life of the loan.

An easy way to get great information is to have a Wells Fargo Reverse Mortgage Specialist talk with you over the phone. You an request to be contacted by completing this easy online form.

You can learn more about reverse mortgage pros and cons by visiting How Do Reverse Mortgages Work.