Reverse Mortgage Fees

Closing costs

The two costs that are typically paid out of pocket (instead of being financed) are the appraisal and counseling.

FHA mortgage insurance

The upfront insurance premium is 2% of the property value up to the HUD property value limit. The FHA insurance provides three guarantees:

1. The homeowner can not "outlive" the reverse mortgage
2. The homeowner and heirs will not be liable if the balance of the loan exceeds the value of the home (a reverse mortgage can not become "upside-down")
3. The FHA will take over the loan if the lender becomes financial 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
• An absolute maximum of $6,000
• A floor of $2,500

Title fees

Title guarantees the homeowner's legal ownership of the property and is required for all mortgages whether reverse or conventional. The largest part of title fees is title insurance. Title 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
• Doc prep

Appraisal

The appraisal establishes the legal value of the home. A reverse mortgage appraisal is special is conducted by an FHA-approved appraiser and follows specific FHA guidelines that require more documentation than a typical appraisal. A typical FHA appraisal costs $475-$550 depending on the state. Remote locations and properties with unique circumstances (such as having extensive damage) tend to cost more.

Other closing costs

• Counseling
• Wire Fee
• Flood Cert
• Credit Report

Ask for a good faith estimate from a local reverse mortgage specialist here.

Interest

A reverse mortgage accrues interest just like a traditional mortgage except that the homeowner is not making payments each month to reduce the loan balance. As a result the loan balance grows until the homeowner permanently moves out of the property or passes away.

About two-thirds of reverse mortgage holders have adjustable rate reverse mortgages because the rate is usually lower than a fixed rate. Because the homeowners do not make monthly payments, homeowners are not usually as concerned about possible future change in the interest rate.

Interest rate and mortgage insurance

Over the last few years, the interest rate on a reverse mortgage has fluctuated betwen 3% and 5%. The real interest rate is one half of a percentage point above the quoted rate because the total rate includes the FHA's ongoing mortgage insurance premium. For example, if the quoted rate is 4.1%, the rate with insurance is 4.6%. Check this week's reverse mortgage interest rates.