HEADLINE:   Price Wars or Blue Light Special?

Reverse Mortgages are regulated by the government and as such, had limited variability among the lenders.  That is, for the exact same type of loan, the amount of funds a borrower could receive was the same.  What separated lenders was knowledge, service and compensation to the people who sold a Reverse Mortgage (“pricing” – to loan originators).

In order to gain market share, and differentiate themselves from each other, lenders are developing new approaches to create new “bottom lines” for borrowers.  These approaches are hitting the market with fervor. Some may remain; some will be as temporary as a blue light special.

But first, let’s review… What is a Reverse Mortgage and how can one benefit you?  A Reverse Mortgage is a financial tool available only to homeowners 62 and older, that allows access to cash (equity in your home) which you may have thought was previously inaccessible.  You ALWAYS retain title to your home and share no appreciation with the lender.  How much you can receive varies with four different factors – the most important is age.  The older you are, the more you can receive.

With a Reverse Mortgage, no repayment of principal or interest is required while living in the home.  Instead, interest is added to the loan and paid when the house is sold or after the homeowners move from the home.  This creates the cash flow often needed to successfully “Age in Place” - remain in your home safely and securely for as long as you wish.

So what is changing?  Because Reverse Mortgages can be based upon either an adjustable rate or a fixed rate, competition is heating up in both offerings.  For homeowners who needs access to just a small amount of cash and want peace of mind -- a cushion for the unexpected - one lender has substantially reduced the margins for adjustable rate loans, so that adjustable rates can begin at less than 2.25%, in some cases even less than 2%.

But the real competition is taking place on fixed rate loans. Multiple lenders are increasing rewards to the loan originators, making it highly profitable to “sell” the fixed rate mortgage to borrowers even if not in the borrowers’ best interest. Loan originators may pass through to borrowers some of the rewards as closing cost savings, or make keep the entire increased commission for themselves.

One of the downsides of the fixed rate programs is that all lenders require that the borrower take all available funds at close and begin paying interest on the full draw.  This is appropriate in some family situations but not in others.

Another competitive tact is to eliminate the service set-aside on fixed rate loans.  THAT makes great sense since there is very little servicing required.

In the near term, one lender plans to announce they will contribute a substantive share to offset the government-mandated upfront mortgage insurance premium.  This also makes good sense since the benefit will go directly to the borrower and not remain at the discretion of the loan originator.

Finally, lenders are toying with the idea of reducing the fixed rate a tiny bit.  However, since the government-directed program uses a 5% floor in all loan calculations, this will have limited impact on funds available to borrowers, and may easily be offset by savings made possible by lowering closing costs.

Reverse mortgages are a powerful financial tool.  But they may be confusing to a homeowner who may not have had a mortgage for many years.  Reverse Mortgage are available from a number of sources in the marketplace.  We represent multiple lenders and can do the shopping for you, offering the best mortgage available to suit your family needs. 

If you would like more information on the reverse mortgage options available to you, please contact my office at (650) 591-4430.