866 751.6105 Reverse Mortgage Loans

Fees

Closing Costs

The three largest closing costs are the Federal Housing Administration (FHA) mortgage insurance, the origination fee, and title and closing settlement fees. However, the only cost that is typically paid out-of-pocket is for counseling.

FHA Mortgage Insurance Premium (MIP)

For the HECM Standard, the upfront insurance premium is 2% of the lesser of the property value, the FHA’s national lending limit, or the sale price. The FHA MIP provides three guarantees:

  • You will receive the expected loan payments and you will not have to repay the loan for as long as you live in your home
  • If you or your heirs sell your home to repay the loan, your total debt can never be greater than the value of your home
  • Continues to pay you the HECM proceeds, based upon the program plan you selected should your lender become financially troubled.

Origination Fee

The origination fee is what the reverse mortgage lender earns on the loan. The FHA uses a formula to determine what the lender can charge. The formula is:

  • 2% of the first $200,000 of property value and 1% of the second $200,000 of property value
  • A maximum of a $6,000 origination fee

Title and Closing Settlement Fees

Title guarantees the homeowner’s legal ownership of the property. These fees are required for all mortgages whether it is a reverse or conventional loan. The largest part of title fees is title insurance. Title and closing settlement fees are usually broken down into:

  • Title insurance (varies by state and with property value)
  • Title settlement
  • Title search/exam
  • Recording
  • Delivery/courier
  • Payoff (if a mortgage is being paid off)
  • Notary
  • Document preperation

Appraisal

The appraisal establishes the legal value of the home. A reverse mortgage appraisal is conducted by an FHA-approved appraiser and follows specific FHA guidelines that require more documentation than a typical appraisal.

Other Closing Costs

  • Counseling fee
  • Wire fee
  • Flood certification fee
  • Credit report fee

Interest

A reverse mortgage loan accrues interest similar to a traditional mortgage except the homeowner is not making payments (interest or principle) each month to reduce the loan balance. As a result, the loan balance grows with a reverse mortgage loan until the homeowner permanently moves out of the property or passes away.

Interest Rate and Mortgage Insurance

Over the last few years, the interest rates on a reverse mortgage loans have fluctuated between 3% and 5%. The real interest rate is one and a quarter percentage points above the quoted rate because the total rate includes the FHA’s ongoing Mortgage Insurance Premium (MIP) charges. For example, if the quoted rate is 4.51%, with the MIP charges of 1.25% the total rate would be 5.76%.