What do I look for when comparing lenders for a mortgage or a reverse mortgage today?
The secretary of Housing in Ben Carson made some large changes in the reverse mortgage loan in October of this year as we continue to live longer and our life span increases HUD felt it needed to cut back on the reverse loan as many of us have seen it over the last few years.
So, HUD reduced the amount of money per age limit they are lending, and at the same time, reduced their interest rate cap floor so that the increase and rising interest rates will continue to reduce the lending limits further.
In a nut shell, they lowered their lending limits and made it so the lending limits will continue to decrease with rising interest rates over time.
So, more than ever we need to be very conscious of how we choose our mortgage and what lender we choose and why.
1. First, compare interest rates. In any mortgage, you shop interest rates as a way in comparing lenders. In the reverse loan, you must shop interest rates as they have dramatic effects on your mortgage.
The interest rate on a reverse mortgage has a dramatic effect on your loan. The effect of the interest rate will determine how much HUD will insure and lend. The lower the rate – the more you get in a loan as well as the lower interest carry. In a regular mortgage if the interest rates are a quarter percent high, you end up paying another 30.00 more per month for example in a payment. In a reverse mortgage if the rate is a quarter percent higher then the loan limit is reduced by 30.00 per month for example over your lifetime. This extrapolates back to a much less loan at a higher rate.
For example, if you are buying a home with a reverse mortgage at 4.5% than you may have to put down 180,000 to buy a home with a one-time down payment. If the rate is as low as 4.25% then you only must put down 165,000 to purchase the same home. So, over a life time of interest carry on a home with a reverse loan, the down payment is much higher. So, your loan will not only grow by a higher rate, but it will also cost you a much higher down payment.
The most important factor in a reverse mortgage is to make sure you shop the lowest rate possible – plain and simple. Paying points and fees down to the lowest rate that HUD and investors can offer will always make sense in a reverse loan since the changes took place in October.
The beauty of the reverse loan is that since we are the only direct lender that funds our own reverse loans in the county, there is not a lender in the state that is more competitive in rate than we are at Cherry Creek Mortgage and that leverages to the best overall loan as well because of the mechanics of the loan discussed above.
2. When looking at a conventional mortgage or forward mortgage with FHA or VA then you need to shop rate and fees. For my senior client’s, I am not a fan of buying down points like we do in a reverse loan. The break even in time and years to make up for the buy downs, usually doesn’t make sense at a certain age. I like to go in as skinny as possible with fees on a conventional loan. From our end, we like to be under 1295.00 in closing costs, so the break even on a refinance is not out long, and the down payment on a purchase is not compounded with 5,000 in closing fees for example like most banks or lenders will charge.
New lending guidelines make it easy to shop for rate by using APR or annual percentage rate when comparing banks and lenders on loans today. But, you still need to be cautious of how long the closing costs take to break even on a loan because many times of course, we will not live long enough to pay off a long-term mortgage so, the importance of payment and fees are more important than trying to shop the long-term rate with a buy down of fees.
3. Finally, does the lender broker the loan or do they underwrite and fund their own loans and are they local. Many times, today servicing gets sold on loans even if the lender like us or a bank will hold on too many or much of their own servicing. The bigger piece to the servicing is to make sure your local lender will represent you know matter who the servicer is and that you have a single point of contact over the life of the loan. This means if you want to put down large payments and have your payment adjusted because of principal or paying off the loan in the future and especially with your heirs in dealing with someone local makes a huge difference.
Until next time,