Costs of a Reverse Mortgage Loan

This article is pretty cut and dried and similar to what you will read on other websites. However, I have made a few comments below which are in italics. You might want to take a look at those. One in particular is about loan origination fees. You can read another article about loan origination fees here: Why are the Loan Origination Fees so High?

After you read this article, take a look at this one for more information on the costs of the loan: How Much Will I REALLY Get?

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The Costs of a Reverse Mortgage Loan

Except as noted, all costs can be financed, that is, added to the loan balance (amount owed).

• Property Appraisal: The loan officer will ask you for this up front. It is generally an advance payment of about $350, but may be refunded to borrower and added to loan balance at loan closing.

• Credit Report: generally an advance payment of about $25 for a simplified credit report, but may be refunded to borrower and financed with the loan. It doesn't really matter what your credit is however, they need to assure that your property isn't the subject of freshly instigated lawsuit which will result in a judgment lien about the time your loan is about to close.

• Standard Closing Costs: title search and insurance, surveys, required inspections, recording fees, mortgage taxes, etc.

• Hazard or Flood Insurance Premiums: replacement value coverage is required; may require advance premium to be paid at closing if coverage is increased.

• Origination Fee: varies by lender, but cannot exceed the greater of $2,000 or 2% of the Maximum Claim Amount, which is the lesser of the home's appraised value or HUD’s maximum mortgage insurance limit for the area, which is also known as HUD’s 203(b)(2) limit. (A little secret I have learned along the way is that often your loan officer cannot waive any part of the origination fee. The lender requires that all the origination fee be collected. There's no bargaining room there. Your loan officer is working for a lender. Out of the $2,000.00 or more of the amount of the origination fee your loan officer will keep between $200.00 and $500.00. The lender will get the rest. Often the loan officer is not making any other compensation for their time except the portion of the origination fee they receive.)

• Mortgage Insurance Premium: up-front payment equals two percent of the Maximum Claim Amount, paid or financed at closing, plus an annual premium of 1/2 percent, or 50 basis points, charged on the rising loan balance. (My experience is that the Mortgage Insurance Premium is usually the same exact amount as the origination fee. The two are not related but the calculations of them both fall about in the same range.) An additional explanation of MIP can be found here.

• Servicing Fee: flat monthly charge, if not included in interest rate; cannot exceed $30 per month for HECMs with annually adjusting interest, and $35 per month for HECMs with monthly adjustable interest. (The servicing fee on a regular loan is figured into the loan costs as well and taken through interest and points. In a reverse mortgage the servicing fee is calculated and set aside as an amount against your maximum claim amount. In other words if you are entitled to get $50,000.00 the servicing fee will be calculated at an amount which will come off the top of that $50,000.00. Usually this runs around $3,000 to $5,000.)

• Interest is charged on all payments made to the borrower and on all loan costs that have been added to the loan balance. Borrower may select a rate that is subject to change either once a year or once a month.

• Annually adjustable interest cannot vary by more than 2 percentage points per year, or 5 points over the life of the loan. Monthly adjustable interest has no annual cap and a current lifetime cap of 10%.

• Interest rate adjustments do not affect the amount of a monthly advance, but they do change the rate at which a creditline grows larger. They also affect how quickly the HECM loan balance grows.