Costs & Fees of a Reverse Mortgage
Costs & Fees of a Reverse Mortgage
Like any type of mortgage, there are several types of costs involved in getting a reverse mortgage. Critics of reverse mortgage loans often point out that these costs tend to be higher than they are for traditional mortgages, but reverse mortgages are also available to many borrowers who may not be able to access traditional financing. The good news is that most of the costs associated with a reverse mortgage can be financed and paid out of the loan proceeds. There are often no out of pockets costs. The closing costs are rolled into the new reverse mortgage loan.
Most of these costs are up-front one-time costs, while a few fees are added monthly to the loan balance throughout the life of the loan.
Up Front Reverse Mortgage Costs
Loan Origination Fee
Loan origination fees go to cover the lender’s costs of processing the HECM loan. This fee varies, depending on your home’s value and program, but is capped by HUD at $6,000. If a home is valued at less than or equal to $125,000, the origination fee will be no higher than $2,500; if the home is valued higher, lenders may charge 2% of the first $200,000 of the home’s value, plus 1% for any amount over $200,000. Regardless of your home’s value, this fee would never go higher than $6,000. Origination fees are often financed through the loan itself.
Home appraisals are standard in any kind of mortgage, to ensure both the lender and the borrower have an accurate estimate on the value of the home. Appraisals typically cost approximately $450 Appraisals for special properties, such as Multi-Unit, unique or high value properties, can cost more.
Closing Costs & Third-Party Services
Closing costs and third party services such as title searches, title insurance, surveys, inspections, property taxes, credit checks, recording fees and other processing costs are all wrapped up in closing costs. These costs may be paid up front, or they may be financed.
Upfront Mortgage Insurance Premium (MIP)
This federal housing administration insurance guarantees the borrower will receive the loan payments in the exact amounts expected. The initial mortgage insurance premium rate depends on the % of equity being borrowed; if homeowners are borrowing less than 60% of their Max Claim Amount, the upfront MIP will be 0.5% of the appraised value up to $625,500, and if the amount borrowed exceeds 60% of the Max Claim Amount, the Upfront MIP rate rises to 2.5% of the appraised value or $625,500, whichever is less.
Ongoing Costs & Fees
The loan balance carries an ongoing, monthly MIP, at 1.25% (annually) of the loan balance. This is added as interest to the loan balance and is paid when the loan is paid off.
Servicing fees are only applied to Jumbo Fixed Rate Reverse Mortgages. The servicing fee does not reduce the amount of proceeds you can receive. For Jumbo reverse mortgages with a fixed interest, this servicing fee is $25 each month. The servicing fee is added to your loan balance and is not something you have to pay each month.
Annual Mortgage Insurance Premium (MIP)
In addition to up-front MIP fees, mortgage insurance premium is charged annually at a fixed rate of 1.25%. This fee is added to the loan balance, and paid once the loan is payable.
Fixed or Adjustable Interest
Interest is the largest cost when it comes to reverse mortgage loans. The fixed interest rates are typically higher than adjustable rates. Adjustable interest rates can adjust monthly or annually, with a cap of 5% or 10% over the start rate.