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Fees, Cost & Repayment
 The fees and costs of a reverse mortgage typically run $5,000-$8,000. There are no up front costs because all fees and costs are generally added to the loan.
The costs associated with a reverse mortgage break down into 3 categories:
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, the value of the house is worth at least the amount of the loan at that time.
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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. On average, the compensation received by a mortgage company on a reverse mortgage is 50% of what the company would receive on a traditional, forward mortgage. Accordingly, the traditional mortgage industry has not spent a lot of money advertising and educating the public about reverse mortgages. That may explain why you haven't heard much about reverse mortgages.
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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 and capped by the U.S. Government. Despite that, they typically run $5,000 - $8,000 and are added to your loan balance. 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 cost will likely be $500-$800 a year. Not bad at all. 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
The rate on your reverse mortgage is typically 5%-6% and is adjustable monthly or annually. The most common reverse mortgage is the monthly adjustment reverse mortgage. The interest rate on this loan is 1.5% above the 1-year T-bill rate, which changes every Tuesday. Please note that the 1-year T-bill rate is equivalent to the CD rate and has not been over 6% in excess of 15 years. The last time it was over 6% was 1990.
Regarding the interest that is added to your loan, it is added monthly and you receive a monthly statement. Please take comfort in knowing that approximately the first 4% of appreciation that occurs on your house each year usually covers the interest being added to your reverse mortgage loan balance on the average term loan.. As a point of reference, in 2004, the average house in the U.S. went up 8%.
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