Costs of a Reverse Mortgage
24 April 2006, Revised December 2, 2008
The settlement charges on a reverse mortgage cover pretty much the same costs that are involved on a forward mortgage, but there are some differences. Instead of a list of lender charges, which can very from lender to lender, reverse mortgages have one "origination fee" which covers all lender costs.
On HECMs, the origination fee is set by regulation at 2% of the FHA loan limit, with a minimum fee of $2,000 and a maximum of $6,000. The loan limit was raised in 2008 to $417,000 nationwide.
HECM borrowers must pay FHA an upfront mortgage insurance premium of 2% of the lower of home value and the maximum loan limit, and an annual premium of 1/2 percent of the loan balance. Other upfront fees cover title insurance, appraisal, credit report, flood certification, document preparation, closing, property survey and pest inspection. For more detailed information on these costs, see http://www.reversemortgage.org/.
None of the upfront costs are out-of-pocket, they can all be included in the loan amount. But a chunk of the borrower's equity is used up in the process, which makes the transaction very expensive if it terminates within a short period.
Borrowers pay a monthly charge of $30-35 to cover the cost of servicing. In addition, to assure that there will always be enough equity in the property to cover servicing costs, a sum of money is earmarked for servicing at the outset of the transaction. Called a "set-aside", the loan limit used in calculating the credit line or annuity is reduced by that amount.
Origination Fees on Reverse Mortgages
The settlement charges on a reverse mortgage cover pretty much the same costs that are involved on a forward mortgage, but there are some differences. Instead of a list of lender charges, which can very from lender to lender, reverse mortgages have one "origination fee" which covers all lender costs.
On HECMs, the origination fee is set by regulation at 2% of the FHA loan limit, with a minimum fee of $2,000 and a maximum of $6,000. The loan limit was raised in 2008 to $417,000 nationwide.
Other Reverse Mortgage Costs Paid at Origination
HECM borrowers must pay FHA an upfront mortgage insurance premium of 2% of the lower of home value and the maximum loan limit, and an annual premium of 1/2 percent of the loan balance. Other upfront fees cover title insurance, appraisal, credit report, flood certification, document preparation, closing, property survey and pest inspection. For more detailed information on these costs, see http://www.reversemortgage.org/.
None of the upfront costs are out-of-pocket, they can all be included in the loan amount. But a chunk of the borrower's equity is used up in the process, which makes the transaction very expensive if it terminates within a short period.
Servicing Costs
Borrowers pay a monthly charge of $30-35 to cover the cost of servicing. In addition, to assure that there will always be enough equity in the property to cover servicing costs, a sum of money is earmarked for servicing at the outset of the transaction. Called a "set-aside", the loan limit used in calculating the credit line or annuity is reduced by that amount.