A common question I receive regards how to find a trustworthy reverse-mortgage lender. This is not necessarily easy for those beginning the process with little more to rely on than an Internet search engine. A starting point may be with personal referrals from your financial advisor, or from friends or family who have felt satisfied with their lenders. I am also willing to help readers find the names of local lenders from reputable companies if you write to me providing your city and state. I am not compensated by reverse-mortgage lenders for giving such referrals.
For more information, download our Reverse Mortgage 101 Cheatsheet.
It is important to speak with a few different lenders and to get a sense of the range of possibilities with regard to reverse-mortgage options in terms of up-front costs, the lender’s margin, and ongoing costs, and whether the lender can serve as a resource to address any servicing issues after the loan is initiated. Costs will vary and can depend on how the loan is used: those wishing to set up a line of credit as a later resource may have to pay a higher up-front cost than those who plan to spend more quickly from the HECM. It is important to consider more than just who offers the lowest up-front costs, because having a personal connection to the lender can be important for any subsequent servicing issues or questions, and because the interaction of up-front costs and the lender’s margin can be complicated and hard to assess.
Here are some issues to consider when speaking with a lender:
Is the lender patient about meeting with you in person or speaking by phone to answer your questions?
Is the lender clear about the different terms and costs available for reverse mortgages? Does it explain the costs clearly and not try to hide them by emphasizing only the possibility of no “out-of-pocket” costs?
Has the lender been clear about your responsibilities regarding property taxes, maintaining homeowner’s insurance, and keeping the property maintained?
Has the lender suggested that you seek additional guidance for tax advice or for advice about receiving assistance from government-welfare programs, if relevant?
Does the lender demonstrate interest or knowledge about retirement-income planning so that you have a better sense about the right options and strategies for your situation? Is the lender conversant about the topics and issues raised in this book?
As well, there are some red flags to consider that may suggest that a lender is not the right choice for you:
The lender pressures you to make a decision about applying for a reverse mortgage before you feel comfortable or ready.
The lender encourages you to take a larger proceed from the line of credit when the loan begins than you otherwise feel comfortable with or feel is necessary for your situation.
The lender encourages you to use the reverse-mortgage proceeds to buy a new investment or insurance product, especially if it seems as though the lender could receive some sort of compensation if you do.
The lender provides you with a list of HUD-approved independent counselors, as it should, but tries to direct you to a specific counselor.
This is an excerpt from Wade Pfau’s book, Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement (The Retirement Researcher’s Guide Series), available now on Amazon.