Reverse mortgages vary in costs & fees from lender to lender, so for seniors who are interested in a reverse mortgage there is no easy way to simply get a HECM quote that is the lowest one since there is such a great difference in lenders fees. This was the case before Reverse Mortgage Lenders Direct came along, now with our free HECM reverse mortgage comparison it is fast & easy for us to compare the lenders then provide you with the best reverse mortgage quote. For seniors who are skeptical please realize that the reverse loan is a federally insured program that every lender has access to (HECM lenders) but instead of them all charging the same fees to simplify the process they choose to offer different loan fees – therefore the only real way of savings money is when you compare at least 3-4 lenders which we do for you at no cost – to save you time and money.
Reverse Mortgage Costs & Fees – Explanation and Breakdown of Costs Involved for 2014.
First and foremost you must have around $550 dollars to pay for the out of pocket reverse mortgage fees (which includes paying $50-100 for HUD counseling & the FHA appraisal fee of $300-$450 – none of this money goes to the lender but for the service providers directly). These fee has to be paid by for the consumer and there are laws in most states against the lenders covering these fees – We are able to find reverse mortgage counselors which do not charge a fee – and there is a desktop appraisal which charges only $100 first then the remainder to make sure that the home value is close to where it needs to be. These two costs are similar to refinancing costs minus the HUD counseling fee if any since that is not a requirement to refinance – do not hesitate to contact us about finding you a free HECM counselor.
Reverse Mortgages Typical Fees Involved
- Appraisal
- HECM counseling
- Loan origination fee
- Document preparation and ‘recording’ the loan
- Appraisal or survey of the property
- Title and tax search
- Attorney’s fees charged to the lender in connection with the closing of the loan
- Credit report
- Flood zone search
- Inspection fee
- Annuity purchase payment
- Repairs contracted for, at or before the loan closing
- Tax reporting service (a one time fee)
- Mortgage insurance
- Real estate taxes and property insurance
- Mortgage brokerage services (not to exceed three points based on the value of the property)
1.) Origination fees: Pays the lender for preparing all of your paperwork and processing your loan, which is known as originating the loan. A lender can charge you up to $2500 as a fee if the home is worth less than $125,000.
If the home is worth more, the lenders/banks can charge a 2% fee on the first $200,000, and then a 1% fee on any amount greater than $250,000.
There is an overall cap on fee’s and this simply means that no matter what your reverse mortgage will not costs more than $6,000. This fee is also very similar to how refinancing works – depending on the current market interest rates we are able to find you some no origination fee reverse mortgages if the market is right.
We can drastically reduce your closing costs by comparing reverse mortgages offers for you.
Example: $300,000 home
origination fee: ( 2% x $200,000= $4000 plus ( 1% of remaining $100,000 or $1,000 )
We can work for you to find lenders who wont charge you an origination fee – as time goes on and the reverse mortgage requirements tighten up this will become even more valuable. HUD has announced that starting on April 1st 2013 there will no longer be the option for a lump sum fixed rate reverse mortgage so for those seniors who want a fixed rate without fees the time is now to get a quote.
2.) Closing Costs: Since there are many parties involved including but not limited to appraisers, title surveyor, lawyers, title search, insurance, credit checks, mortgage taxes, and many more fees. All of the fees above have to be paid no matter who you decided to get a reverse mortgage with, some lenders will charge less than others, but you can expect to pay a few thousand dollars to cover these expenses.
3.) Mortgage Insurance Premium (MIP) HECM Loans all come with insurance which has to be paid in the form of upfront % of value of home (2% home’s value charged upfront) and also a 0.5% which is added to the interest rate on the loan for the HECM Standard.
HECM Standard mortgage insurance premium is 2% upfront
HECM Saver mortgage insurance premium is .01% upfront – substantially providing seniors with savings.
Why do you have to pay this insurance on your reverse mortgage loan
HECM insurance guarantees that
§ you receive your loan advances as long as you live
§ that you can live in property for as long as you live
§ debt can never be greater than value of your home is sold to repay loan
§ you will continue to receive payments if lender defaults
§ if you live much longer than average you will continue to receive payments
As you can see the government is taking on a large amount of risk by insuring these loans for your benefit but you do have to pay for this extra protection. As more reverse mortgage scams occur this is a great mandatory fee for consumers.
4.) Servicing fee Depending on your age and the life expectancy left, the servicing fee is a monthly fee set between $30-35 per month, which is paid for a reverse mortgage through a “set aside fund”. When you initially consider a reverse mortgage the bank/lenders will calculate the overall costs of the servicing fees and then create a “set aside” account with enough money to cover this fee over a predicted lifetime. This amount is deducted on a monthly basis and you do not have to worry about paying it out of pockets since it can be built into the loans.
5.) Reverse Mortgage Interest Rates The banks primary fees are interest on the loan, which in the case of a reverse mortgage start to actually increase the amount of owe over time. With a traditional mortgage every time you send a paycheck to pay mortgage you are essentially paying down principal part of loan and also the interest. Since with a reverse mortgage there are no payments the interest accrues on the loan and causes your reverse mortgage loan to increase in value over time. If you were to take out a reverse mortgage today, in 10 years time that loan will reflect the interest over the 10 year period.
While a reverse mortgage is an expensive option, most mortgage products are, and the best way to reduce the upfront costs is to shop around for the best interest rate & lowest closing fees which we help with. We provide our reverse mortgage comparison service for free to seniors who are considering a reverse mortgage to improve their retirement while also being mindful of the costs involved and who is trying to get the best deal possible.
If you are considering the reverse mortgage loan there is a high chance that you are also considering the following actions:
1.) selling your home
2.) taking a HELOC (home equity line of credit) or a home equity loan (possibility even a cash our mortgage refinance
Having options is great in your retirement, the costs difference of taking a reverse mortgage compare to #’s 1&2 above are not that grand and in some instances the reverse mortgage is considerably cheaper to do. News media has really created a bad name for the reverse mortgage because when it first launched there were really high fees involved and even though the program has changed to substantially reduce the fees the news/media kept portraying the image of it being expensive. Considering the fees of selling your home can easily cost (3% of the homes value) or a cash out refinance can compare to a HECM saver in cost, this gives you one less pros/cons to think about. With a reverse mortgage you will not have to sell the home – you can retire there and not worry about property values – because you wont have a monthly mortgage payments -if any equity is built in the home it belongs to you and when it comes time to leaving the home to the heirs the property is theirs and not the banks.
RM costs and fees
One of the biggest concerns for households looking to take a reverse mortgage is the costs and fees attached with the program. It is essential to look at the actual benefits and costs of this program to come to the correct conclusion of whether to go for this program or not. The major fees attached with this program are:
Origination Fees: This is the fee that is used to cover the expenses of the lender for providing the reverse mortgage. Currently, the lender can charge a fee of 2% for the initial $200,000 of appraised value of the house. Fee of 1% is charged for the remaining value of the house. For example a house of appraised value $300,000 will have an origination fee of 2%*$200,000 + 1%*100,000= $4,000 +$1,000=$5,000. For a house of $150,000 the origination fee is 2%*150,000 = $3000.
The maximum origination fee is capped at $6,000. When the market is very competitive some, lenders waive a part of this origination fee to attract customers. One should shop around and negotiate to find if this fee can be reduced. Click Quote Save has been designed to help seniors in comparing multiple HUD approved lenders to find the best possible deal while saving time and money.
Mortgage insurance premium: The Mortgage Insurance Premium (MIP) is a fee paid to FHA which protects both the buyers and the lenders. The buyer is ensured of getting the payments at regular interval even if the lender goes bankrupt or is unable to give the requisite payments. The lenders are protected in case the house is not able to deliver the requisite amount when sold against the payments made to the buyer during their lifetime.
The MIP is divided in two parts:
Upfront payment: This is an upfront premium paid to FHA for taking reverse mortgage. It is either 0.5% of the appraised value or 2.5% of the appraised value. If more than 60% of the net available principal is used in the first year of taking reverse mortgage the premium is 2.5%. However if less than 60% of the available principal is used within the first year, the upfront premium is 0.5% of the total appraised value.
Example: If a house is worth $200,000 and a tenure payment is taken by the couple who are 63 years old the financial calculation is:
| Available principal limit$106,000 | |
| Less Financed Items | |
| Loan origination fee | $4,000 |
| Mortgage insurance$1,000 | |
| Other closing costs$2,222.75 | |
| Net Principal Limit$98,777 | |
| Less Lump-Sum Cash | $0.00 |
| Fixed-Rate Unusable Funds | — |
| Less Selected Creditline | $0.00 |
| Available In First Year | $0 |
| Left for monthly advance | $98,777 |
| Monthly Advance | $572.46 |
| No more lien payments | 0 |
| Increase in monthly cash | $572.46 |
| Monthly Term | Tenure |
| Total Fees & Costs | $7,223 |
Here the upfront mortgage insurance is $1,000 or 0.5% of the appraised value because a tenure payment is taken where the monthly payments are made till one of the owners survives. The first year payment is $572.46*12= $6869.52. 60% of the available principle is $63,600. Hence the first year payments are much less than the 60% limit. Due to this the mortgage insurance is 0.5%.
On the other hand if reverse mortgage is used to eliminate mortgage payments of above $63,600 the mortgage insurance will be 2.5%. If the household wants to clear the mortgage on the house in which they still owe $70,000, the premium will increase.
| Available principal limit$106,000 | |
| Less Financed Items | |
| Loan origination fee | $4,000 |
| Mortgage insurance | $5,000 |
| Other closing costs$2,222.75 | |
| Net Principal Limit$94,777 | |
| Less current debt payoff | $70,000 |
| Less Lump-Sum Cash | $0.00 |
| Fixed-Rate Unusable Funds | — |
| Less Selected Creditline$0.00 | |
| Available In First Year$0 | |
| Left for monthly advance$24,777 | |
| Monthly Advance$143.60 | |
| No more lien payments | 0 |
| Increase in monthly cash | $143.60 |
| Monthly Term | Tenure |
| Total Fees & Costs | $11,223 |
In the first year $70,000 is used to pay-off the mortgage on the house. This is 66% of the available principle and hence a mortgage insurance of 2.5% is charged. 2.5% of $200,000=$5,000 is charged as mortgage insurance in this case. Hence the household loses $4,000 if they choose to take out more than $63,600 in the first year or more than 60% of the available principal in the first year.
Annual Premium: FHA also charges an annual premium of 1.25%. This premium is not paid by the household. It is added to the mortgage account depending on the total amount disbursed. At the end of the loan when the property is sold this amount is received by FHA from the share of the property.
Appraisal Fees: This fee has to be paid before the loan is disbursed. An appraiser comes to the house to assign a current market value to the home. Their fees vary by region and state but on an average the fee is about $400 to $500. The appraiser also reports if there is any structural damage to the property or if it requires any major repair. If the cost of repair is less than 15% of the maximum available cash through the reverse mortgage a ‘repair set aside’ fund will be created which can be availed to make the requisite repairs.
Closing Costs: This has a host of fees included in it. They are:
Document preparation fee: Normally $75 to $150
Flood certification fee: Around $20
Credit report fee: Around $20 to $50
Recording Fee: It varies between $50 and $500. It depends on the location of the house.
Courier fee: around $50
Pest Inspection: Around $100
Survey: Around $250
These fees can add up to around 2% to 4% of the amount available.
It is essential to make a thorough calculation of the various costs and fees while taking a reverse mortgage. In recent times the reverse mortgage saw a major increase in loan applications before decreasing in the past couple of years.
Figure: Reverse mortgage loan volumes
With the current low interest rates and rebound in home values reverse mortgage can be an important tool for many households to have a comfortable retirement. The additional cash provided by reverse mortgage can be added to social security benefits to increase the monthly budget and to have a buffer during emergencies.
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More resources:
http://www.aarp.org/money/credit-loans-debt/info-2006/whatarecosts.html
http://www.consumerfinance.gov/askcfpb/237/what-are-the-costs-i-will-have-to-pay-for-a-reverse-mortgage.html
http://www.dfi.wa.gov/consumers/reversemortgage.htm
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou