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FDIC Consumer News

Spring 2011 – Special Edition: Shop and Save…at the Bank

Other Loans: Tips to Get a Good Deal

Reverse Mortgages: These loans enable homeowners age 62 or older to borrow money from the equity in their homes and not pay anything back until the borrower moves out of the house, sells the property or dies. While there are potential benefits to a reverse mortgage, it also is a complex loan with a variety of costs and risks and it may not be the right product for everyone.

Most reverse mortgages are Home Equity Conversion Mortgages (HECMs), which are part of a program from the U.S. Department of Housing and Urban Development's Federal Housing Administration. The FHA offers two reverse mortgage products — the traditional HECM Standard and the new HECM Saver. The latter features considerably lower upfront costs for people borrowing a smaller loan amount than the HECM Standard allows.

Seniors and their families should be especially aware that the interest charges and other costs on a reverse mortgage could use up much or all of the equity in their home, leaving little or no value for the borrower or for heirs who typically will have to pay off the loan either by refinancing or selling the house.

Note: Current law requires an HECM applicant to first speak with a HUD-approved counselor for guidance. However, as of early 2011, federal funding for the counseling program may only be available for a short period of time. For updates and for more information on HECMs, see Frequently Asked Questions about HUD's Reverse Mortgages. For additional guidance, see Advice for Seniors: Understand the Risks and Costs of Borrowing With a Reverse Mortgage.

Auto Loans: Start shopping for a loan before you walk into a dealership or bid on a new car over the Internet. Consider getting pre-approved for a loan, so you know your loan options and the likely costs before you buy a car. Also assess the true cost of the financing "specials" offered by the dealership and comparison shop based on the Annual Percentage Rate (APR), not just the monthly payment.

For more tips, see Auto Loans: Take Control of the Financing Before You Take Control of the Wheel.

Small Business Loans: Your best financing option may be a small business loan from a bank instead of borrowing through either a credit card (which can be expensive) or a home equity line of credit (which would put your home at risk if you have problems paying back the loan). Start by preparing or updating your business plan — a summary of your company's goals, needs and financial projections.

To learn more, see Need a Small Business Loan? Try These Strategies.

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Last Updated 5/13/2011

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