Menu

Reverse Mortgage Closing Fees Costs Explained in Plain English. How much does a reverse mortgage loan cost? Fees, rates, and charges to the reverse mtg reviewed.

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.

Reverse Mortgage Volume Originations Chart

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.

Related searches:
reverse mortgage costs
reverse mortgage fees
closing costs reverse mortgage
closing fees reverse mortgage
fees reverse mortgage
costs reverse mortgage
what are fees HECM reverse mortgage
what are costs HECM reverse mortgage
what are closing costs HECM reverse mortgage
fees and costs of HECM reverse mortgages
explain fees reverse mortgage
reverse mortgage fees explained plain English
how much does a reverse mortgage cost
what are the costs to a reverse mortgage
costs involved with doing a reverse mortgage
reverse mortgage loan fees and costs
upfront costs reverse mortgage
upfront fees reverse mortgage

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