You may be asking yourself how that could be a possibility. Most people associate Reverse Mortgages as having high closing costs in order to obtain one because of the 2% Upfront Mortgage Insurance Premium (UFMIP) that is charged by HUD to insure the loan.
In fact, that is the number one complaint that you normally hear spoken about Reverse Mortgages is that the costs involved to obtain a Reverse Mortgage are just too high.
HUD released the Saver version of the Reverse Mortgage product in an effort to bring a lower cost option to borrowers seeking a Reverse Mortgage. The Saver program is a great alternative to those borrowers who are looking to get a Reverse Mortgage loan without having to pay for the full 2% UFMIP that you have on the Standard Reverse Mortgage.
However, with the lower closing costs on the Saver product also comes a lower percentage of available proceeds. That is the trade off that comes with going with the Saver product. For some that is sufficient and a welcomed option.
For others though, they just don’t get enough money from the saver to make their scenario work and that’s ok too. Now, borrowers who want closing costs as low as the Saver product but don’t want to sacrifice the amount of available proceeds that can be had on the Standard product have a new option at their disposal.
As of today, interest rates for fixed rate product are at all time lows in the Reverse Mortgage industry with rates as low as 3.68%. However, there are also rates that go up to 3.99% that have Lender Credits for closing costs associated with them at the higher rates.
Borrowers who are not as worried about accruing interest, or need every possible dollar at closing can choose to take the higher interest rate and receive closing cost credits that can cover all their financed costs in some instances leaving them with a No Closing Cost Reverse Mortgage option.
This is not to say that this option would make most sense for everyone, as the difference in interest accrual between 3.68% and 3.99% over 5 to 10 years could be significant.
For example, I have run a sample scenario below showing the difference between 4.00% and 4.99% for a 75 year old individual with a $350,000 estimated home value:
You will see that the 4.99% loan in this sample scenario had a $15,916 higher balance after 5 years and $42,407 higher balance after 10 years. However, the borrower would have received $9,702 more in proceeds because of the Lender Credit given at the 4.99% rate.
This would make the net difference only $6,214 at 5 years and $32,705 at 10 years. For some people that would make all the difference in the world as to whether or not they could even get the loan done.
With the sample scenario above, the borrower received almost $10,000 more in available proceeds with a $350,000 estimate of property value going with the 4.99% rate to receive the Lender Credit. However, keep in mind that the Reverse Mortgage Program has a cap of $625,500 for value that can be considered into the calculation.
For example, if our 75 year old individual’s home was worth $625,500 or higher, the amount of the lender credit would have been over $17,000 which might help a borrower with higher existing liens and a larger shortfall even more.
As with every type of financing, the individual and their circumstances would determine which route they would take.
However, just having the option available to obtain a Reverse Mortgage where the costs are covered by the Lender is an exciting thing and for some can be the difference between spending the rest of their lives in the home they love and facing foreclosure.
Full Disclosure on “No Closing Cost Options”
Currently our $0 Closing Cost option is minimum $100k loan – Excludes required counseling fee (when present), State Taxes may not qualify for Lender Credit.
PS – The last time I wrote an article about a No Closing Cost Reverse Mortgage was in 2008