A reverse mortgage allows homeowners 62 and older with sufficient home equity to access that equity and convert it into cash. The Home Equity Conversion Mortgage (HECM) makes up the vast majority of reverse mortgages originated in the United States. HECMs are federally regulated and insured by the Federal Housing Administration (FHA). If you’re considering a reverse mortgage, it’s important to educate yourself about how this product works. Therefore, we’ve outlined the various costs associated with a reverse mortgage to better help you decide whether this product is right for you.1
Counseling Fee – Reverse mortgage counseling is required as part of the application process. The counseling session must be completed through a HUD approved counselor. The fee is usually about $125. It’s important to note that this fee cannot be rolled into the financing costs and typically must be paid out of pocket.
Appraisal Fee – An appraisal is required for a reverse mortgage, and generally costs between $300 and $500. However, it can be more or less depending on a number of factors such as region, type and value of your home.
Third-Party Fees – You can expect to pay fees such as loan recording, title search, title insurance, etc. A detailed breakdown of these costs should be included in your Good Faith Estimate. You should also know that you have the option to shop for your own title company to perform the title search and provide title insurance. These fees can be financed as part of the loan.
Mortgage Insurance Premium (MIP) – The borrower will be charged both an initial MIP at closing, as well as an annual MIP over the life of the loan. The initial MIP is either 0.5 percent or 2.5 percent, depending on your disbursement amount. The annual MIP charge equals 1.25 percent of the outstanding loan balance. MIP costs can be financed as part of the loan.
Origination Fee – This fee is charged for processing your loan. A lender can charge the greater of $2,500 or two percent of the first $200,000 of your home’s value, plus an additional one percent of the remaining value. Regulatory guidelines dictate a fee cap of $6,000. Origination fees can also be financed as part of the loan.
Loan Servicing Fee – Lenders have the option to charge a monthly servicing fee of: (a) no more than $30 if the loan has an annually adjusting interest rate or has a fixed rate or (b) no more than $35 if the rate adjusts on a monthly basis.
Long-Term Property Costs – New eligibility requirements for a reverse mortgage now include a financial assessment to evaluate a borrower’s ability to pay their property taxes and homeowner’s insurance. As a result of this assessment, borrowers may be required to set aside a portion of the loan proceeds to pay for taxes and insurance. However, doing so may reduce how much cash the borrower will receive.
If you’re considering a reverse mortgage and would like find out how much you could qualify for, please use our Reverse Mortgage Calculator or call 800-218-1415.
1 What Are the Fees to Get a Reverse Mortgage? – nerdwallet.com, by Deborah Kearns, 3/13/17, https://www.nerdwallet.com/blog/mortgages/reverse-mortgage-fees/.