This article will familiarize you with the typical costs associated with a reverse mortgage.
Typical Reverse Mortgage Costs
Reverse mortgage costs can be divided into two categories, recurring and non-recurring. You will need to compare both categories of costs on each possible loan scenario to decide which loan is the cheapest. Some loans may have larger upfront costs, but be cheaper over time. Other loans are less expensive up front but over time make little financial sense. It may be helpful to review various possibilities with family members, your reverse mortgage lender, and a HUD counselor.
If you take a reverse mortgage against your house, you will have normal recurring costs such as property taxes, home owner's insurance, and home owner's association (HOA) dues, if applicable. Additionally, you will have recurring costs associated specifically with the loan, such as mortgage interest expense, mortgage insurance premiums, and servicing fees.
Mortgage Interest Expense - You will need to be very familiar with not only your initial interest rate, but any adjustments that could possibly happen to the interest rate over the life of the loan. The greatest expense of a reverse mortgage will most likely be the amount of mortgage interest you pay.
Annual Mortgage Insurance Premiums (MIP) - This type of insurance is different from your home owner's insurance premiums. It is also different from the non-recurring up front MIP. Usually, you will pay insurance for the lender of about 0.500% of the loan balance per year.
Servicing Fees - Reverse mortgages have monthly servicing fees, typically about $35 per month. This charge covers the reverse mortgage lender's expenses for servicing your loan.
You can pay, potentially, thousands of dollars to get a reverse mortgage. The costs you would need to pay are the same costs that you would pay to get a traditional mortgage. Here are estimates on typical costs you will find on either a reverse mortgage or a traditional mortgage.
- Appraisal $350
- Property Inspections $250 - $500
- Credit Report $20
- Escrow Fee $350
- Title Insurance $ (varies by loan amount)
- Flood Certification $15
- Notary Fee $50
- Recording $100
- Document Preparation $150
- Underwriting $500-$800
- Origination Fee
- Up front mortgage insurance premium (UFMIP) - different from home owner's insurance and different from annual MIP
The reverse mortgage origination fee is the amount the reverse mortgage lender gets paid for originating your loan. The origination fee on HECMs, the most common type of reverse mortgage, cannot exceed 2% of the first $200,000 of the loan amount plus 1% of the loan amount over $200,000 to a maximum of $6,000.
Up Front Mortgage Insurance Premium (UFMIP)
On HECMs you will pay 2.250% of the loan amount up front. This insurance guaratees that if your reverse mortgage lender goes out of business, your loan agreement will continue uninterupted. The insurance also guarantees that when paying off your reverse mortgage, neither you or nor your reverse mortgage heirs will owe more than the value of your home at the time the loan is repaid.
Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.