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Best States for Reverse Mortgages

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Reverse mortgages are loans that help seniors convert the equity they’ve built up in their property into the cash they need in retirement — while staying in their homes. Seniors across the United States have access to reverse mortgages, but the loans aren’t equally popular every state. Which states are the best for taking out reverse mortgages? We explain which states are the best for seniors who want to take out a reverse mortgage.

What is a reverse mortgage?

With a reverse mortgage, homeowners ages 62 or older can take out a home equity loan that does not need to be repaid until after the borrower is no longer living in the home. The money can be accessed as a lump sum or monthly payment, and most of the time, seniors use the cash from a reverse mortgage to supplement their Social Security checks and other income during retirement.

The loan works in the opposite way as a traditional mortgage. In “forward” mortgages, the borrower makes payments over time and gradually brings the balance down.  Under a reverse mortgage agreement, borrowers don’t have to make payments on the loan. The balance of the loan typically grows over time.

The most common type of reverse mortgage is called the Home Equity Conversion Mortgage (HECM). These loans are insured by the Federal Housing Administration. HECMs include high fees, including a 2% upfront mortgage insurance premium and annual mortgage insurance premiums that cost 0.5% of the outstanding loan balance. But they also offer lots of protections for borrowers.

As long as a senior lives in the house and continues to pay for taxes, insurance and maintenance, the lender cannot foreclose on the borrower. Plus, the borrower or the borrower’s heirs will never have to repay more than the house is worth.

But reverse mortgages aren’t free money. Over time, the reverse mortgage erodes the equity in the home. This leaves borrowers with little or no equity to leave to the heirs or to use later in retirement. It’s important to weigh the pros and cons of a reverse mortgage before taking one out.

When borrowers take out a reverse mortgage, the lender sets a maximum amount the lender can borrow —  called the maximum claim amount. Maximum claims vary depending on the age of the borrower and the value of the home. However, the FHA will only insure claims up to $726,525.

HECMs may be the most common type of reverse mortgage, but they aren’t the only option for seniors. Private lenders offer proprietary reverse mortgages with their own qualifying criteria and maximum claim amounts. In particular, people with home equity in excess of $1 million may benefit from a jumbo reverse mortgage.

Some state and local governments or nonprofits offer what are called single-purpose reverse mortgages, where the money is directed to a particular use.

“People should carefully research these to see what fits their needs,” said Steve Irwin, executive vice president of the National Reverse Mortgage Lenders Association (NRMLA).

States with the most reverse mortgages

Over the last few years, the number of people taking out reverse mortgages has declined. In 2018, the FHA insured just over 41,000 mortgages compared to about 114,000 in 2009.

However, the loans remain popular in a few states. Larger states and those popular with retirees tend to have more reverse mortgages. For example, Texas issued just over 3,000 reverse mortgages in 2018 and Florida issued over 3,600 the same year. Reverse mortgages are even more popular in California. Seniors in the Golden State took out over 9,000 reverse mortgages in 2018 — the most of any state. In fact, according to research from LendingTree, four California cities rank in the top 10 cities where reverse mortgages are used most often.

The sky-high real estate prices in California may explain some of the popularity of reverse mortgages in that state. The average maximum borrowing amount in California was over $496,000, according to federal data, which is 47% higher than the national average of $338,000.

The only areas with a higher average claim amount were Hawaii, with an average claim of $577,000, and Washington D.C., where average claims are $502,000.

Borrowers in California, Florida and Texas took out the most loans, but they didn’t get the best interest rates in these states. Instead borrowers in Utah found the best interest rates with an average rate of 4.56%. Nationally, rates on reverse mortgages were 4.76% on average.

Top three states with the most reverse mortgage loans issued

StateNumber of Loans IssuedAverage Interest RateAverage Claim AmountTotal Claim

Most Reverse Mortgage Loans
State Number of loans issued Average interest rate Average claim amount Total claim
California 9,372 4.75% $496,091 $4,649,368,767
Florida 3,643 4.75% $271,252 $988,170,236
Texas 3,053 4.75% $239,827 $732,191,117

Source: U.S. Department of Housing and Urban Development

Top three states with the largest average reverse mortgage claim amount

Largest Average Claim
State Number of loans issued Average interest rate Average claim amount Total claim
Hawaii 166 4.67% $577,459 $95,858,200
Washington, D.C. 145 4.81% $502,460 $72,856,675
California 9,372 4.75% $496,091 $4,649,368,767

Source: U.S. Department of Housing and Urban Development

Top three states with the best average interest rate on reverse mortgages

Best Average Interest Rate
State Number of loans issued Average interest rate Average claim amount Total claim
Utah 977 4.56% $345,323 $337,380,283
Wyoming 88 4.66% $254,096 $22,360,449
Hawaii 166 4.67% $577,459 $95,858,200

Source: U.S. Department of Housing and Urban Development

How to compare reverse mortgage offers

When it comes to taking out a reverse mortgage, a few factors will influence how much you can borrow. Some factors you can’t change: the value of your home, your age and the cost of FHA insurance on the loan.

However, there are some factors you may be able to influence. Financing charges such as the origination fee and interest rate influence how much you can borrow. By being a savvy shopper you can get your best deal on your loan, and be sure you maximize the amount of home equity available to you.

When it comes to comparing reverse mortgages, borrowers should look at the Total Annual Loan Cost (TALC) on a loan disclosure provided by a lender. The TALC clearly explains what fees the lender will charge, and what the interest rate on the loan will be. Comparing the TALC among multiple lenders will help you find your best deal.

Reverse mortgages come with several fees that borrowers can shop for. These include credit report fees, escrow settlement fees, document fees and appraisal fees. But according to Irwin, borrowers should pay special attention to origination fees. Origination fees can vary dramatically from lender to lender, but origination fees on HECMs are capped at $6,000.

On top of the fees, borrowers need to compare interest rates on reverse mortgages. While you’re not making payments, interest accrues over time — increasing the balance on your reverse mortgage loan. The higher your interest rate, the faster the balance on the mortgage will rise.

But should you automatically choose the loan with the lowest interest rate? Not necessarily, Irwin said. Interest rates on reverse mortgages may be fixed or variable rate. If you’re comparing a fixed rate to a variable rate option, it might make sense to lock in a slightly higher fixed rate. That way, you’ll know that the interest rate won’t increase over time.

The bottom line

High home values and low interest rates may make reverse mortgages more enticing in some states than others. However, it’s important to consider your personal situation when taking out a loan. Before you take out a reverse mortgage, talk to a housing counselor and your financial advisor to decide whether it makes sense for you.


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