Familiarize yourself with the typical costs associated with a reverse mortgage.
Typical Costs Associated with a Reverse Mortgage
You Can Finance Most Reverse Mortgage Loan Costs
There may be no out of pocket expenses on a reverse mortgage. Most, if not all, of the associated costs can be rolled into the loan by the reverse mortgage lender. Two possible out of pocket costs might be the counseling session and the appraisal. If counseling is required, as it is with all HUD Home Equity Conversion Mortgages (HECMs), you may need to pay for the counseling session out of pocket. The cost of counseling must be disclosed upfront. If the fee is a hardship, you may qualify for free counseling. You may also need to pay for an appraisal of your home up front to make sure your home has enough equity and is a qualified property.
Typical Costs Associated with Reverse Mortgages
Many of the costs you pay to get a reverse mortgage are the same costs you would pay for a traditional mortgage.
- Appraisal (average $400)
- Property Inspections (average $350)
- Credit Report (average $20)
- Counseling (average $125)
- Flood Cert (average $15)
- Escrow and Title (varies by loan amount)
- Recording (average $100)
Reverse Mortgage Lender's Origination Fee
Reverse mortgage lenders typically get paid by charging a fee for originating the loan. HECM reverse mortgages are the most typical type of reverse mortgage. HECM have caps on how much the reverse mortgage lender can charge: 2% of the first $200,000 of value plus 1% of any value over $200,000. A house worth $250,000 would have an origination fee of $4,500.
Mortgage Insurance Premium (MIP)
HECM loans are a type of HUD reverse mortgage. A HUD reverse mortgage is insured by the FHA. There is a 2% upfront fee and a .5% add to the interest rate for the insurance. The insurance is expensive, but it has an important purpose. It insures that you can live in the house without repaying the loan for as long as you live and regardless of what happens to the home's value.
Monthly Service Fee
Because a reverse mortgage has to administered over the life of the loan, you can expect to pay about $35 a month for servicing. The reverse mortgage lender calculates how much it may cost to service your loan for the estimated life of the loan. That total amount for servicing is set aside up front. It isn't charged up front, but only set aside for servicing the loan.
Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.