A Home Equity Conversion Mortgage (HECM) may be a reasonable reverse mortgage choice for you — either now, or at some future time. But until you compare it to your other options, you cannot make an informed decision about it. Seriously considering all your options will help you see more clearly why you prefer some to others. It is also likely to lead you to the decision that best serves your needs.
Timing is another key factor. During the next year or two, HECM loan costs are likely to decrease and a variety of new, lower-cost proprietary reverse mortgages are likely to become available. So if you do not have an urgent need at present, it makes sense to wait until the costs come down and you have more choices.
A reverse mortgage counselor can help you find details on alternatives to reverse mortgages. But it's a good idea to investigate them before seeing a counselor. If you do, you can use the counseling session to ask questions about your other choices that may arise when you look into them.
So be certain to explore the options and alternatives in the Other Choices section of this Web site's Reverse Mortgages information. Even if you end up getting a HECM, combining it with another option may make more sense than not.
Proprietary Reverse Mortgages
If you are considering a proprietary reverse mortgage, you must proceed with caution. If your home is worth more than $850,000 ($1.1 million for couples), you might be able to get larger loan advances than you could get from a HECM. But you are also highly likely to pay more, and you need to understand how much more these loans can cost.
The best way to compare the costs and benefits of a proprietary plan versus a HECM is to get the side-by-side loan comparisons produced by software that meets AARP's model specifications.
You can get these comparisons from counselors in the National HECM Counseling Network of the U. S. Department of Housing and Urban Development (HUD). For the latest information on counselors and lenders who can provide these comparisons, read the "Choosing a Counselor" and "Selecting a Lender" articles in the Key Decisions section of this site.
HECMs and proprietary reverse mortgages are most expensive if the loan is repaid within a few years after closing. These loans typically have substantial start-up costs, and guarantee that you can stay in your home for as long as you want. But if you know you are going to sell and move within a few years, you would be paying for something you are neither expecting nor likely to need. And that's generally an expensive thing to do.
If you can qualify for a low-cost home equity loan and easily make the required monthly repayments, this option can be less costly in the short run than a HECM or a proprietary reverse mortgage. But before applying for a home equity loan, learn about the potential pitfalls in this market.
Now or Later?
When would be the best time to take out a reverse mortgage: now or later? In the future, you may be eligible for larger cash advances because you will be older and your home is likely to be worth more. If your home's value is greater than HUD’s home value limit (currently $625,500), that limit is subject to change every January.
On the other hand, if interest rates rise, you may not be able get greater loan advances in the future. Over the past few years, interest rates have been at historically low levels. So it may be unlikely that rates will go down, and the likelihood of rising rates may be greater than when rates are higher. Use the Reverse Mortgage Calculators to see how much difference an older age or greater home value could make. A table in the article "Growing Creditlines" in the publication shows you how much difference a higher interest rate could make as well.
Remember, one month after you take out a reverse mortgage your debt will begin growing. The longer you postpone taking out a reverse mortgage, the more interest charges you will avoid and the more equity you will most likely have if and when you do decide to become a reverse mortgage borrower.