In his latest article on reverse mortgages, The Mortgage Professor, a.k.a. Jack Guttentag, addresses the topic of Home Equity Conversion Mortgage pricing—from upfront fees to how to avoid paying excessive ones.
Guttentag, professor emeritus of finance at the Wharton School of the University of Pennsylvania, raises two questions in his column: whether borrowers are getting value for the upfront fees they pay, and whether they can avoid paying excessive fees (the answers to which, he says, are “no” and “yes,” respectively).
The price differences stem from products that carry differing rates, and different origination fees that come with them, Guttentag notes, citing the example of a fixed rate reverse mortgage at a 5.06% interest rate and $6,000 origination fee and the same loan available at 3.99% and zero origination fee.
The process is complicated by the fact that interest rates and origination fees are varied, he says, as well as the distraction factor that draw amounts can present to borrowers.
“The major focus of most consumers is the amount they can draw on a HECM,” he writes. “Much of the advertising has this focus, especially the on-line advertising which invites the consumer to fill out a form on the basis of which the consumer is told how much they can draw. If the consumer does not ask for the price used in the calculation of the draw amount, she may not see it until receiving the various documents that require her signature.”
Written by Elizabeth Ecker
