A reverse mortgage, when used correctly can add stability to your retirement years and selecting the right lender to originate your loan is an important first step.
I created this guide to provide insight into how lenders are rated and how reviews are collected across the web, (both independent and sponsored review sites).
With a federally insured HECM loan, the lender is NOT the entity who is guaranteeing access to your funds or the terms of the loan.
HUD guarantees that if a lender servicing your loan goes out of business, FHA will transfer your loan to another servicer that must honor the same terms for your lifetime.
The following tips will make sure you select the right reverse mortgage provider:
#1. Get the loan from a lender who is looking out for YOUR best interests.
Many people are convinced that they need just one thing or another and they miss other points that may make a lot more difference in the overall benefit or cost of the loan.
We have borrowers who look at the cost of the appraisal fee and will go to one lender over another because the appraisal fee at one is $100 lower, not realizing they receive thousands less due to a higher rate or that the higher rate will accrue thousands of dollars more interest over the life of the loan and that’s just one example.
You really need to look at the totality of the transaction and not allow yourself to be fixed on just one small factor that in the overall picture may not even be a major factor.
#2. Beware of fake reviews.
Read the reviews of actual customers online.
Do not trust solely in online sites that generate leads for companies, their reviews can be bought and sold.
Go to honest third parties like the BBB (Better Business Bureau) or Google Ratings whose ratings are consumer generated and cannot influenced by the lender.
Look for problem issues that are constant and recurring and realize you may want to steer clear of those originators.
Understand your needs. This loan is all about you, not the lender.
The key to a successful reverse mortgage is getting the right loan the first time and the right loan is the one that addresses your circumstances.
At All Reverse Mortgage, we prefer to give you enough information to make an informed decision – not sell you a loan program that doesn’t fit your needs.
#3. Compare all the loan terms, including but not limited to fees.
Lending laws do not allow originators to pad any closing costs. Appraisals, title fees, credit, etc., all can be charged at only what those companies charge.
Originators cannot by law add anything to those fees. Many borrowers look only at the fees on an adjustable rate loan.
You must also look at the margin if you are looking at an adjustable rate loan as a higher margin can cost you thousands and tens of thousands of dollars in interest over the life of the loan, just as a higher interest rate can on a fixed rate loan.
The effect of the higher margin is you receive less money in the loan, and you pay significantly more interest over the life of the loan.
Do not overlook the margin!
Since the UFMIP is based on 2.0% of the appraised value of the home to a current maximum of $765,600, the UFMIP can go as high as $15,312.00.
With an increased interest rate option, there is a possibility that we can absorb this or some of this upfront insurance saving you thousands.
In some cases, the higher margin and lower fee would cause you to receive less money overall.
That’s why it’s important to compare and see which is really a better option for you.
#4. Make sure your lender is HUD approved
To check if your lender is HUD approved you need to visit https://www.hud.gov/program_offices/housing/sfh/lender/lenderlist
Start your search by entering your lender name and before the search check mark “Reverse Mortgages through FHA’s Home Equity Conversion Mortgages (HECM)”
#5. Avoid companies with appraisal interests
We will never use an Appraisal Management Company (AMC) that is owned in whole or part by just one lender.
Lender-owned AMC’s do not cooperate with lenders other than the one who owns them so that borrowers are trapped if their original lender cannot close their loan or if another lender can give the borrowers a better deal and the borrower later wants to transfer to another lender.
This creates a conflict that prevents borrowers from being able to transfer the appraisal and some banks routinely followed this procedure, locking borrowers into loans they later cannot change.
It’s a loophole in HUD’s intentions but there is currently no way to get the AMC to cooperate as they say they cannot work with anyone but the lender who placed the order (who, conveniently enough, owns them).
When this happens, borrowers have one of two choices, order a new appraisal at an additional cost or stay with their original lender, even though they might have found a loan with lifetime costs thousands of dollars less.
There is a solution though. You have to do your homework and get solid quotes and compare before you begin.
Then verify the credentials of the originator and the company.
If you have done all the comparison shopping in advance, you won’t have that terrible feeling later if things get rocky and you find that you didn’t even have the best circumstances from the start and now the lender is making it almost impossible for you to move your loan.
2020's Top 10 Reverse Mortgage Lenders
Company Name Years in Business Stars (0-5) Good Reviews Complaints BBB Reviews
All Reverse Mortgage Inc. (ARLO) 15 5.0 100% 1 Source
American Advisors Group (AAG) 14 4.1 82% 56 Source
Longbridge Financial LLC 7 3.5 70% 2 Source
Reverse Mortgage Funding LLC 7 3.0 40% 8 Source
One Reverse Mortgage LLC
11 3.0 54% 2 Source
Liberty Home Equity Solutions Inc. 15 2.1 42% 2 Source
Mutual of Omaha Mortgage 7 1 20% 2 Source
Fairway Independent Mortgage 23 5.0 100% 21 Source
HighTech Lending Inc 13 3.0 60% 2 Source
Finance of America Reverse LLC 15 1.0 20% 2 Source
The BBB is one of the last review sites that does not accept monetary influence in their ratings or posted reviews.
12 Month Average Reverse Mortgage Lender Rates (Reported by HUD.GOV)
Company Name AVERAGE NOTE RATE ESTIMATED PLF LOSS EQUITY LOSS AT 10 YEARS
All Reverse Mortgage Inc. (ARLO) 3.79% $0.00 $0.00
American Advisors Group (AAG) 4.95% $19,800 $18,794
Longbridge Financial LLC 3.91% $4,200 $1,846
Reverse Mortgage Funding LLC One Reverse Mortgage LLC
4.39% $10,200 $9,446
Liberty Home Equity Solutions Inc. 4.99% $19,800 $19,480
Mutual of Omaha Mortgage 4.31% $10,200 $8,146
Fairway Independent Mortgage 4.69% $14,400 $14,392
HighTech Lending Inc 4.60% $14,400 $12,895
Finance of America Reverse LLC 4.34% $10,200 $8,643
This chart is for illustrative purposes only. The numbers do not differentiate fixed vs adjustable rate loans and cannot take into consideration property location, loan amounts, product mix, program interest rate caps, initial fees or future rate changes. Therefore, this comparison assumes all borrowers to be 65 years of age with a property valued at $300,000. It assumes an initial loan draw of $100,000 on the line of credit program (the most popular option) for comparison. Different criteria (borrower ages, draws, regional costs, etc.) will alter these numbers, please use this chart for comparison only as the actual total interest accrued will vary. Please consult your amortization schedule received with your loan proposal or application package for actual numbers.
Top 5 FAQs
What banks do reverse mortgages?
Most major banks exited the reverse mortgage industry several years ago leaving non-bank lenders, brokers, small banks and credit unions as the remaining lending sources. While most reverse mortgages are insured by the federal housing administration (FHA) and adhere to the same rules, each lending institution offers their own margins and interest rates.
Who is the highest rated reverse mortgage company?
To find the best rated reverse mortgage provider you will need to do a little research and ignore some of the paid advertisements you will find in many search results. Very few websites nowadays offer legitimate non-sponsored reviews. Look to independent websites that do not accept monetary incentives for sponsored reviews such as the Better Business Bureau, Google and Yelp.
Does HUD offer reverse mortgages?
HUD as an entity does not originate loans but does approve lenders to originate the federal insured HECM loan. HUD’s role in the reverse mortgage industry is to insure against a lender’s loss by collecting upfront mortgage insurance premiums. The HUD MMIP fund is what makes reverse mortgages possible and guarantees many of its features and safeguards.
Are all reverse mortgage companies the same?
No! Every reverse mortgage company operates independently of the government. HUD is the entity behind the reverse mortgage and underwriting guidelines but is not involved in the origination process. Make sure the lender you are working with is approved by HUD, a member of NRMLA and don’t forget to compare rate and fees with multiple sources.
Does AARP endorse reverse mortgage lenders?
No. AARP is a senior organization that first lobbied Congress and successfully brought forward a reverse mortgage program on a national level and signed into law by Ronald Reagan in 1988. AARP’s involvement in the reverse mortgage industry is to make sure HUD is responsible in its underwriting guidelines and looking after the interest of seniors and the undeserved.
- Reverse mortgage lenders market to consumers in a variety of channels such as TV commercials, internet, direct mail and through financial planning communities.
- Choose your lender based on their independent reviews and best offer as lending institutions set their own interest rates and fees. (Contrary to believe the government does not control the rate, margin or origination fee.)
- Companies that are HUD Approved are direct lenders and will usually save you time and money as working with a broker means you are working through a “middleman” and can expect some higher costs associated with your loan.
- Make sure the lender you select is approved by NRMLA and abides by their code-of-ethics.
- Don’t accept high pressure sales tactics
- All reverse mortgages require independent counseling. Make sure you review and consider alternative options before committing.