Dear Liz: This is not a question, but a comment on a recent column regarding reverse mortgages. Although your information was factual, reverse mortgages are not a prudent choice and should be considered as a last resort only. I investigated this option for my parents, and the fees are unbelievable: a minimum 2% origination fee and an annual 0.5% service fee to send out their checks. This does not factor in the other closing costs (title, escrow, appraisal, etc.). If you understood the usury involved by the lenders, you could not recommend it in good faith.
A: The fees that come with reverse mortgages can be steep compared with a conventional mortgage, which is why it may not be the best option for many borrowers.
That’s one reason borrowers applying for a federally insured reverse mortgage must undergo special counseling to help determine whether these loans are the best choice. You can call the Department of Housing and Urban Development at (800) 569-4287 for a referral to a HUD-approved housing counseling agency.
Origination and servicing fees can vary substantially from lender to lender. That is why it’s important to shop around to get the best deal.
The earlier column mentioned the AARP booklet “Home Made Money,” which you can download from its website (www.aarp.org) or order by calling (800) 209-8085. If you have any questions after reading the booklet, you can call the same number to be directed to the AARP Foundation’s Reverse Mortgage Education Project.
You might also check out the website maintained byÂ NationalÂ CenterÂ for Home Equity Conversion, an independent, not-for-profit organization that provides consumer information at http://www.reverse.org .
Reverse mortgages can be a prudent option for elderly homeowners who want to remain in their homes, but you’re right that they should understand the costs before they proceed.