The Wall Street Journal reported over the weekend that reverse mortgages are getting a makeover, in the form of the HECM Saver.
Released in October, the new product is appealing to a new type of borrower according to the WSJ. For example, a retired management consultant decided to go with a HECM Saver rather than a traditional home equity line of credit.
The Saver’s 4.01% “effective” rate—consisting of a 2.76% variable interest rate, plus a 1.25% annual fee—”compares favorably” with the 4.78% variable rate the client would pay for a home-equity line of credit, he says.
Although closing costs on the Saver are higher, the client plans to hold the reverse mortgage long enough to come out ahead thanks to the lower interest payments, Mr. Gregory says. The client also didn’t want to worry about his wife being saddled with monthly loan payments if something were to happen to him.
However, the article notes that it’s not all positive with the HECM Saver. The amount of money provided is less than the standard and the HECM Saver rate is higher from many lenders due to investor uncertainty over the loans.
While “it may be appropriate to pay a higher interest rate to get a lower upfront fee,” Barbara Stucki, vice president for home-equity initiatives at the nonprofit National Council on Aging says, such a move could backfire if a borrower plans to keep the loan for a long time.
