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Fees, Cost & Repayment
 When you take out a reverse mortgage, there are no upfront, out of pocket costs that you have to pay. All the costs are added to the loan, and paid back when you die or sell the house.
The costs associated with a reverse mortgage that are added to the loan break down into 3 categories.
Note: In the market today, some lendors pay the origination fee for the borrower, some pay the mortgage insurance premium. In most cases, they are the same amount.
1. Mortgage Insurance Premium - 1/3 of total cost |
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This is paid to FHA. It is insurance which insures that when you die and the heirs sell the property, they will not owe anything in the unlikely event the house sells for less than the balance due on the reverse mortgage.
This protects your heirs. The cost of the mortgage insurance premium is 2% of the appraised value of the house.
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2. Loan Origination Fee - 1/3 of total cost |
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This is the compensation paid to the company that helps you obtain the reverse mortgage.
The origination fee is 2% of the appraised value of the house (1% for the value of house over $200,000), with a minimum of $2,500 and a maximum of $6,000. |
3. Various Title Company Expenses - 1/3 of total cost |
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These costs include the title policy, appraisal, survey, document preparation charges, attorney fees, and compensation to the Title Company. |
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NOTE: All fees on a reverse mortgage are regulated by the U.S. Government. Despite that, they average $6,000 - $12,000 and can be more based on the value of the house. In evaluating these fees, here's the key thing to consider - how long do you anticipate staying in your home? If it's long term and you can spread those fees over a number of years, the loan makes sense. But alternatively if you anticipate moving in the short term, getting a reverse mortgage may not be right for you. The reason is because if you can only spread those fees over a couple of years, it makes the reverse mortgage too expensive.
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Loan Repayment
The loan is not due and payable until the borrower no longer occupies the home as a principal residence. ( i.e., the last surviving borrower sells, moves out permanently, or passes away. )
Interest Rates
Both fixed rate reverse mortgages and adjustable rate reverse mortgages are available. Today the fixed rate is between 5 1/2% to 6%. The adjustable rate is between 4%-5%, it adjusts every month, and is tied to the LIBOR Index, which is very similar to the U.S. treasury bill rate. |
