All About Finances

Are you thinking about a reverse mortgage but are concerned about the costs involved? If so, this article is for you. We will discuss loan origination fees, mortgage insurance, title insurance and other closing costs as well as the interest rate – which can be one of the the biggest reverse mortgage costs of all. The goal of this article is to provide you with enough information about reverse mortgage costs so that you can make an informed decision about whether or not a reverse mortgage is right for you.

Loan Origination Fees
Most people choose a Home Equity Conversion Mortgage (HECM) – the are federally insured and are the most widely available reverse mortgage. On HECM loans, there is a 2% origination fee on the first $200,000 and then 1% on the value after that with a cap of $6000.

Non-HECM reverse mortgage loans are available that may have lower origination fees. The key with comparing loans is to look at the total cost. One loan may have lower origination fees but a higher interest rate which means a higher overall reverse mortgage cost.

Mortgage Insurance
With an HECM loan, borrowers are also responsible for mortgage insurance which typically runs 2% of the value of the home. There is also an annual mortgage insurance premium that must be paid and is usually half a percent per year. The mortgage insurance guarantees that the amount of your loan will not exceed the value of your home when your mortgage comes due.

Title Insurance, Appraisals and other Closing Costs
Another similarity between traditional mortgages and reverse mortgages are the additional closing costs. Reverse mortgage closing costs include title insurance, a new appraisal, document preparation fees and possibly an inspection if your home is particularly old or it’s condition is questionable. All of these costs will usually run about a percent or two of the home’s value.

Interest Rate
Just like a traditional mortgage, the interest that you pay over the life of the loan will be your largest reverse mortgage cost. The total cost that you will pay will depend on your interest rate, the amount that you borrow and the length of your loan. On an HEMC mortgage, which is the most common type of reverse mortgage, you can choose between an adjustable rate mortgage that adjusts either monthly or annually and is tied to the 1 Year US Treasury Constant Maturity Rate which fluctuates weekly. For these types of loans the rate is generally the 1-Year Treasury rate plus a percent and a half.

Other reverse mortgage programs offer similar programs where the rate is tied to a particular index (not always the 1-Year Treasury index) with a margin of up to 4% added. Shopping around for the best deal is crucial to finding the best reverse mortgage loan.

Reverse mortgages can be a significant benefit to seniors who are looking to use the equity in their home to pay for the cost of living, medical bills or other expenses. However, reverse mortgage costs must be taken into consideration. Loan origination fees, mortgage insurance and reverse mortgage closing costs can meet or exceed 5% of the total value of the home being borrowed against, and that doesn’t even include the interest rate. With the information we’ve provided in this article you are now aware of the reverse mortgage costs you are likely to encounter. Hopefully this information will benefit you in your search for a reverse mortgage that will meet your needs.

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