“Are Reverse Mortgage Fees Really High?”
Are Reverse Mortgage Fees Really High?
by Daniel J Turner NMLS#1016716; Geneva Financial LLC NMLS#42056
Copyright 2020 Daniel J Turner All rights reserved.
It is sad that many Planners believe the FHA Reverse with the home equity line of credit (not the virtually useless fixed rate program) has “high fees”; it does not.
In addition, Reverse Mortgages (in general-neither FHA nor Private Lender programs) do not charge “points” for origination. Point charges in mortgage lending is exclusive to conventional mortgage lending, not reverse.
With regard to the general perception of “reverse mortgages have excessive/high fees, The culprit “fee” in question is the FHA upfront Insurance Premium (called UFMIP) and is 2% of the appraised value of the home.
While a 2% ONE TIME premium is only slightly higher than the AUM NAV comp scale most of you will earn on an ANNUAL basis, the deep flaw in this belief is the borrower gets little or nothing in return for the “fee”, and it’s wasted equity. Whole Life insurance is an even more obvious compare/contrast of cost vs. value.
The fact is they get a LOT of real value from the insurance.
If not for the fee? It would be the scam that everyone assumes it to be.
Because of the fee? Here are just 6 quick benefits of the MANY contractual protections of the FHA insured HECM HELOC
- The Borrower is guaranteed to be able to stay in their home with or without making mortgage debt payments for as long as they own and occupy the residence.
- The FHA HECM Insurance guarantees the preservation of the equity for the heirs by stopping the Tenure income and suspending the HELOC access if Medicaid shows up.
- The line of credit cannot be canceled, suspended, or reduced.
- The line of credit isn’t “10 years with a 20 yr amortization” as we find in the Banks. It is unfettered availability to the credit equity for 150 years from the birth of the youngest Borrower.
- If the value of the debt ever exceeds the value of the home for ANY reason except mis or malfeasance (e.g. property value failures, market corrections, etc.)? Nothing bad happens (because) of the insurance.
- ALL available equity in a HECM HELOC are guaranteed to add new equity to the credit line at the annual renewal rate (currently 3-4% tax free). Federally insured.
It is unfair and intellectually lazy to look at the expense of an insurance program without balancing it with the benefits. The typical Whole Life insurance policy is a great example of the one-sided and convenient viewpoint of many Planners.
Specifically, it’s common for a WL contract to show zero value for the first 2-4 years of premiums, yet the use of whole life ins in financial planning is (appropriately) legendary. Yet, the common financial planning opinion is paying relatively the same premium on a reverse is “expensive”, and “valueless”, and “unmerited”.
Additionally, at 2% of the home (face) value is entirely comparable especially when cash value in a reverse is a very simple and economical thing to do.
Obtaining a copy of a standard HECM HELOC Mortgage Deed of Trust will dispel most (if not all) of the rumors that may presently guide your opinions.
Open your minds. One of the FIRST things we learned in the RICP doctrines was the disparate ratio of 90% of people reaching retirement age at 62? There are (retirement funds-to-equity) ratio’s of up to 5:1.
Obviously-with equity to savings ratios like this? and the safety and stability of a Reverse HELOC? Not using home equity through this Federally Insured, Federally regulated program specifically for Seniors subjects your Client to irrational risks, and a reduction of the quality of life that (we as Planners) are ethically obligated to seek.
Your Clients cannot benefit from a reverse if you’re not willing to learn about the reverse. Feel free to reach out to me.
Retiree’s living in Hawaii Kai, Kaneohe, Waikiki, Ewa Beach, Honolulu, Wapahu, Pearl City, Kailua, Mililani, Manoa, Hilo, Kapole’i, Kailua-Kona, Waikoloa Village, Kamuela, Honoka’a, Mountain View
