This article describes the various costs on a Home Equity Conversion Mortgage reverse mortgage, HECM, FHA, reverse mortgage home purchase, HECM origination fees, HECM settlement costs, HECM mortgage insurance premiums, HECM servicing costs

Costs of a Reverse Mortgage
24 April 2006, Revised December 2, 2008, January 27, 2010, July 28, 2012, March 27, 2017

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. The maximum fee is set by regulation at 2% of the first $200,000 of property value plus 1% of the remaining value up to $6,000, which is the  maximum fee. Lenders are free to charge less than the maximum, and on transactions with substantial initial loan amounts, the lenders on this site charge negative origination fees -- meaning they offer rebates which are used to defray other settlement costs.

Other Reverse Mortgage Costs Paid at Origination


HECM borrowers must pay FHA an upfront mortgage insurance premium equal to a percent of the lower of home value and the maximum loan limit of $625,500. The charge is 0.5% if the initial loan amount is no more than 60% of the principal limit, which is the maximum amount that the borrower can draw. If the initial loan amount exceeds 60% of the principal limit, the premium rate is 2.5%.

Other upfront fees cover title insurance, appraisal, credit report, flood certification, document preparation, closing, property survey and pest inspection. In 2017, these fees totaled about $2600 on a property in Pennsylvania worth $200,000, and about $4600 on a property in Pennsylvania worth $600,000

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


In years past, borrowers paid a monthly charge of $30-35 to cover the cost of servicing. In addition, to assure that there would always be enough equity in the property to cover servicing costs, a sum of money ws earmarked for servicing at the outset of the transaction. Called a "set-aside", the loan limit used in calculating the credit line or annuity was reduced by that amount. In 2017, however, this charge had largely disappeared.
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