A reverse mortgage offers many benefits and can be very appealing. But, just like other types of mortgages, it comes with a cost. In fact, reverse mortgages include a number of costs. These can be paid upfront or financed into the loan. Here are all the elements that make up the cost of a reverse mortgage.
Loan origination fees – Under the HECM program, which accounts for most reverse mortgages made in the U.S. today, the maximum origination fee allowed is 2% of the initial $200,000 of the home’s value and 1% of the remaining value, with a cap of $6,000.
Mortgage Insurance Premiums – With mortgage insurance, you can rest assured that you will receive your loan advances even if the loan servicer goes out of business. Usually, you will be charged an upfront MIP of 0.50% of your home’s appraised value. And you will also be charged MIP on an annual basis, equal to 1.25% of the outstanding loan balance.
Servicing fee – These fees cover things like sending your account statements, customer service or disbursing loan proceeds. Your lender will charge you a monthly fee of $30 if the loan has an annually adjusted interest rate, or $35 for a loan with an interest rate that adjusts monthly.
Third party charges – Closing costs, appraisals, insurance, credit checks, inspections, surveys, mortgage taxes and recording fees are all included here.
If you have lots of home equity and you could use some more income during your retirement, then a reverse mortgage is the best way to go. But, remember, just like with a regular mortgage, it’s best to shop around before signing anything. This way, you can see what options are available to you and pick the best one for you.