Reverse Mortgage Costs
As discussed earlier on this website, costs are associated with obtaining any type of home loan. The costs are upfront for Home Loans, On the other hand, Reverse Mortgages can include the costs in the disbursement of the Reverse Mortgage payout.
There is another cost for Reverse Mortgage borrowers and that is an FHA mortgage insurance premium. This insurance guarantees loan payments and ensures the homeowner or heirs will not repay more than the value of the residence, even if the amount due is greater than the appraised value.
When comparing the costs on a Reverse Mortgage and a Home Equity Line of Credit, one sees that you do not make monthly principal and interest payments on a Reverse Mortgage, but you must for the Home Equity Line of Credit.
Home Equity Conversion Mortgages (HECM) loans are almost always the least expensive Reverse Mortgage you can get from a bank or mortgage company, and in many cases are significantly less costly than other Reverse Mortgages. The costs associated with these Reverse Mortgages are as follows:
Upfront Reverse Mortgage Costs
- Out-of-pocket Home Equity Conversion Mortgages (HECM) counseling fee: In order to get a reverse mortgage, homeowners must undergo mandatory counseling with a HUD-approved third-party counselor that costs approximately $125,
- Appraisal fees: Professional home appraisals are always required for a HECM and cost about $300 to $500. The appraisal company receives an upfront payment for their service.
- Third-party closing costs: Normal closing fees consist of administrative costs, credit checks, liens, and title insurance.
- Initial mortgage insurance premium: The Mortgage Insurance Premium (MIP) averages approximately 2%.
- Loan origination fee: Most Loan Origination fees are routine as they pay for underwriting and closing costs. This service will either cost $2,500 or 2% of the first $200,000 of the home’s appraised value (whichever greater). Additionally, the fee includes 1% of the amount over $200,000. Loan origination fees cannot exceed $6,000.
- Interest on the loan: As with most loans, credit lines and Reverse Mortgages, a cost from interest calculated on the amount of the funds received requires payment. Reverse Mortgages maintain this cost as well, but often defer the payment to the end of the life of the loan.
- Inspection fee: A home inspection will ensure a perfect residence in tip-top condition.
- Repair Fee: When the inspection finds needed repairs or replacements, the homeowner’s responsibility will entail paying the bill.
- Land Survey fee: Refinancing or the sale of a property requires a survey.
Ongoing Reverse Mortgage Costs
- Annual Mortgage Insurance Premiums: During the course of the Reverse Mortgage, the homeowner will pay an annual Mortgage Insurance Premium (MIP) that equals 0.5% of the outstanding mortgage balance, according to HUD. Additionally, an FHA mortgage insurance premium must become part of the Reverse Mortgage package . Homeowners can include the MIP costs in the reverse loan.
- Loan servicing fees: Lender may charge a monthly service fee of up to $35.
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