(How Much Can You Lose if You Don't Find it?)
The best deal on a mortgage is usually defined in
terms of the interest rate and origination fee charged the
borrower. That was my approach in a previous article on the
subject. I recently realized, however, that with reverse
mortgages, it was more meaningful to focus on the amounts
that borrowers receive in the diverse ways in which reverse
mortgages can be used. That is my approach here.
Data Source
Each week, 9 reverse mortgage lenders update their
prices to my web site, which is the only available source of
price data covering multiple lenders. For this analysis, I
assume a borrower of 64 with a house worth $400,000 in
California. 5 of the 9 lenders operate in California, which
means that the borrower has a least 5 quotes -- more
if any of the lenders post multiple rate/fee combinations,
which most of them do. The prices are as of March 22.
Because the best deal on a reverse mortgage depends
on the borrower’s objective, my approach is to look at each
of 5 common objectives. In each case, I compare the largest
amount offered the borrower with the smallest amount.
Raise as Much Cash as Possible
Many reverse mortgage borrowers have an immediate
need for cash, which may be to pay off a short-term debt or
buy a house. In contrast to other objectives discussed
below, which can be met only with adjustable rate HECMs,
this one can be met with a fixed rate or an adjustable rate
HECM.
Using a fixed-rate, the largest amount available on
March 22 was $100,225 from lender A, the smallest was
$83,995 from lender D. The smallest quote was 84% of the
largest.
Using an adjustable rate and including amounts that
can be drawn after a year, the largest amount was $180, 595
from lender C, the smallest amount was $143,594 from lender
E. The smallest quote was 80% of the largest.
Obtain the Largest Possible
Future Credit Line
At the opposite extreme from the previous
case, some borrowers have no immediate financial needs, but
want a rising credit line. A credit line can be used at any
time to generate additional income and/or to meet unexpected
contingencies. I compare the lines offered by the 5 lenders
in 10 years based on their interest rate quotes on March 22.
Lender C provided the largest line in 10 years of
$267,454. Lender E offered the smallest at $232,912. The
smallest was 87% of the largest.
Obtain the Largest Possible
Tenure Payment
A tenure payment is a monthly payment for as long
as the borrower resides in the house. Lender B paid the most
at $830 while lender E paid the least at $803. The smallest
was 97% of the largest. Right now I don’t know why the
spread on tenure payments is much smaller than on other HECM
uses.
Obtain the Largest Possible
Payment For 5 Years
A borrower can draw a larger amount for a shorter
period. If that period is 5 years, he could draw $3285 from
lender C or $2745 from lender E. The smallest was 84% of the
largest.
Obtain the Largest Possible
Credit Line With a Cash Draw of $25,000
Many borrowers use reverse mortgages for multiple
purposes. For example, the borrower might need $25,000 in
cash and want the balance in a credit line on which she can
draw at any time. That line would be $75,079 if obtained
from lender C but only $55,819 if obtained from lender E.
The smallest was 74% of the largest.
Implications For Borrowers
The differences in the amounts offered by the
different lenders on my site understate the differences that
exist in the market as a whole. The lenders on my site know
they are being comparison-shopped. Further, none of them are
among those that spend large amounts on merchandising that
have to be recovered by offering poorer terms to borrowers.
Over the market as a whole, the smallest amounts offered
could be well below those on my site.
None of the 5 lenders in these comparisons offered
the best deal in every transaction, and none offered the
worst deal in every transaction. That means that I can’t
advise borrowers to seek out a particular lender, or avoid a
particular lender. The only valid advice is to seek out the
lender who offers the best deal on your particular
transaction. This is extremely difficult to do except here; just click on
Price My Reverse Mortgage
Implications For Policy
If HUD had an interest in assuring that senior homeowners received the largest possible benefit from the Federally-supported HECM program, it would certify multi-lender sites that make it easy for seniors to find the best available deal.
