• Question
  • Closing Costs of a Reverse Mortgage

    Asked by a 85 year old woman from Tampa, FL on 6/11/2012

    What are the closing costs and interest of a Reverse Mortgage?

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  • Categories: Costs, Reverse Mortgages

Answers

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  • Although many Reverse Mortgage borrowers are concerned about the upfront fees, the biggest cost associated with a Reverse Mortgage is typically the interest accrued over time.

    Below is more detail on your question about Reverse Mortgage closing costs, you can also find information here:
    http://www.newretirement.com/reverse-mortgage/reverse-mortgage-interest-rates.aspx

    FEES
    There are three types of fees paid on a Reverse Mortgage:
    1) Origination Fee: The Origination Fee is the upfront fee charged by the Reverse Mortgage lender to initiate the loan. For the HECM, the origination fee is 2 percent of the maximum loan amount up to a loan amount of $200,000, and one percent thereafter. However, the origination fee can not be less than $2,500 or more than $6,000 no matter the loan amount. The entire amount of the origination fee may be financed as part of the mortgage.

    2) Mortgage Insurance Cost: Mortgage insurance costs are unique to the HECM product. HUD guidelines require that all HECM reverse mortgage borrowers receive Reverse Mortgage insurance, which guarantees that you will continue to receive benefits no matter what happens to your investor and ensures you will never owe more than the value of the home. The Mortgage Insurance Premium is 2 percent of home’s value with a home value cap of $625,000 plus an annual premium of 1.25 percent of the loan balance. However, the HECM Saver program offers, as one of its special features, a lower initial Mortgage Insurance Premium of just 0.05 percent (that’s one twentieth of one percent) of the home’s value.

    3) Third Party Closing Costs: Third Party Closing Costs represent a number of services that may need to be undertaken before the reverse mortgage can be finalized. These can include appraisals, title searches, surveys, inspections, recording fees, local, state, and federal mortgage taxes, and credit checks. As these fees vary from place to place and by vendor; the amount quoted above is an approximate average.

    Shop Around for the Best Fees by Talking to Multiple Reverse Mortgage Lenders. Find Prescreened Lenders here:
    https://www.newretirement.com/reverse-mortgage-marketplace.aspx

    INTEREST
    Interest rates on the HECM Standard and the HECM Saver are both determined by the same index base rate and margins. However, because of the lower loan amount on the HECM Saver, most seniors will likely pay less interest over the life of the loan on the HECM Saver than they would on the HECM Standard.

    Good News About Interest: The good news about interest is that the interest payments -- for both the Standard and Saver products --- are added on to the principal of the loan, and no payments are due until the borrower leaves the property on which the Reverse Mortgage has been placed. Best of all, the amount due on a Reverse Mortgage will never exceed the value of the property at the time the Reverse Mortgage ends.

  • Login to rate this answer:   Answered on 6/12/2012
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.