Reverse Mortgages in
You’ve probably heard by now about reverse mortgages and how they can bring in extra income to help you in your retirement, through a monthly payment, a lump sum, a line of credit, or a combination of these three. Or you may have heard how a reverse mortgage for purchase can help you finance downsizing to a smaller home.
You may say, that’s all fine, but what about the costs? As with any other kind of loan, there are reverse mortgage costs to consider. Here, we’ll go over what those costs are, so you can take them into consideration. After all, you should prepare for every financial decision with some cost-benefit analysis.
Interest will likely be the largest of your reverse mortgage costs. Interest accrues in a reverse mortgage just like it does in a regular forward mortgage. The difference is that you do not make monthly interest payments on a reverse mortgage. You pay the interest at the end of the loan, which means it won’t be an upfront cost for you.
When you get a reverse mortgage, you have to pay insurance on the loan. You pay an upfront mortgage insurance premium (MIP) of 2 percent of the home’s value (up to a limit of $679,650), as well as an annual MIP of .5 percent of the loan balance. So the insurance comprises both an upfront cost, and a cost to you for the life of the loan.
The origination fee covers the lender’s costs for processing the reverse mortgage. This fee varies depending on your lender and the value of your home. Without getting too far into the details, we can tell you that origination fees are capped at $6,000, although it’s likely your fees will not be that high. The minimum origination fee is $2,500. As the name suggests, the origination fee is a reverse mortgage cost you will have to cover upfront, although sometimes it is financed through the loan.
Similar to a forward mortgage, a reverse mortgage involves closing costs for processing the loan. These costs can include appraisal, inspections, title insurance, title searches, property taxes, credit checks, and recording fees. These costs will be incurred when you close the reverse mortgage.
Servicing fees only apply to jumbo fixed rate reverse mortgages. (Jumbo reverse mortgages are designed people with high-value homes, typically above about $1.2 million.) The servicing fee is usually $25-$30, added to the balance of your loan every month. You do not usually have to pay it until the end of the life of the loan. As such, servicing fees are not an upfront cost.
This may seem like a long list of costs to you. With the exception of interest, however, these fees end up costing between $6,000 and $22,000, typically. So, with a reverse mortgage calculator and your knowledge of these costs, you can weigh the benefits of a reverse mortgage against the costs to see if it is the right financial decision for you. If you’d like to do more research, get more information on reverse mortgage costs.
Are you in Sacramento and ready to get a reverse mortgage? If so, apply today to get started on your loan.