Does This Loan Make Sense?
January 17th, 2008
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Gary writes and asks about getting a reverse mortgage:
“I have a balance of 170K on a house that was appraised almost 2 years ago for 450K. I am 63, 3 lenders have indicated that I would need 9k to close. 170 less the 200k max leaves 30k plus the 9k to close. Soooo, it’s going to cost me 39K to do a section 255. Tell me what is wrong with this picture?”
I think you need to look at this a little differently:
$200,000 less $170,000 = $30,000. $30,000 less $9,000 in closing costs means you will have $21,000 in cash available after closing.
However, you will also pay off the existing $170,000 mortgage and thus no longer have monthly mortgage payments for principal and interest. If your current interest rate is 6.5 percent it means you will save roughly $1,074.52. If the rate is 8 percent, then your monthly savings will be $1,247.40. Check your payment book for specific numbers.
You will, of course, continue to have costs for property taxes and insurance.
In other words, if you switch to a reverse mortgage you will have an up-front cost of $9,000 but you will also gain some cash and eliminate certain costs. Thus you need to ask:
Does this arrangement make sense for you?
What happens if you need cash in the future?
Will the potential size of the reverse mortgage grow over time?
Do you have heirs who expect to inherit the property?
The suggestion here is to keep speaking with reverse mortgage lenders — and also with a financial counselor such as a CPA.
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January 24th, 2008 at 6:31 pm
ARE THE CLOSING COST ON REVERSE MORGTAGES HIGH, I SEE THAT THE EXAMPLE YOU HAVE SAY HE HAS TO PAY 9.000.00 THAT SEEMS VERY HIGH, CAN YOU PLEASE LET ME KNOW.
THANK YOU
January 25th, 2008 at 12:00 am
Origination Fee
The origination fee covers a lender’s operating expenses—including office overhead, marketing costs, etc.—for making the reverse mortgage.
Under the HECM program, which accounts for 90 percent of all reverse mortgages made in the U.S., the origination fee is equal to the greater of $2,000 or 2 percent of the maximum claim amount (i.e., county FHA loan limit). Currently, the FHA loan limit varies from a low of $200,160 (for rural areas) to a high of $362,790 (for high-cost metropolitan areas). Therefore, the 2 percent origination fee generally ranges between $4,003 (2 percent of $200,160) and $7,256 (2 percent of $362,790).
Home Keeper borrowers are charged an origination fee that may not exceed 2 percent of the value of the home. With either product, the entire amount of the origination fee may be financed as part of the mortgage.
Mortgage Insurance Premium
Under the HECM program, borrowers are charged a mortgage insurance premium (MIP), equal to 2 percent of the maximum claim amount, or home value, whichever is less, plus an annual premium thereafter equal to 0.5 percent of the loan balance.
The MIP guarantees that if the company managing your account – commonly called the loan “servicer” – goes out of business, the government will step in and make sure you have continued access to your loan funds. Furthermore, the MIP guarantees that you will never owe more than the value of your home when the HECM must be repaid.
These fees are paid throgh the Reverse Mortgage, therefore the only out of pocket fees that may incur is the appraisal.
I hope this explains it better for you.
Donna Nagle
January 28th, 2008 at 8:00 pm
My Florida condo is worth approx. $400,000. It has a $99,000 1st Mtg and a $123,000 Home Equity loan. I would like to pay off both and have about $20,000 to save as a reserve. Can I get a reverse mortgage?
August 16th, 2008 at 10:29 pm
My wife and I have a modified tenure reverse mortgage loan.
Why are we paying 300-600 months to the lender as is shown
on our reverse mortgage monthly statement?