Daniel CohenDec 1, 2010
Reverse Mortgage Loan Fees and Cost
One of the biggest negatives of a reverse mortgage is the high up front cost. If you are considering a reverse mortgage, be sure to review all the fees and costs associated with a reverse mortgage quote:
- Origination Fee The origination fee is the fee charged by the lender to cover their operating expenses such as overhead, marketing, etc. With a HECM loan, the fee charged is 2% of the initial $200,000 home value and 1% of the balance thereafter, with an overall cap of $6,000. For example, a $300,000 home value will be charged $5,000 ($200,000 x 0.02 + $100,000 x 0.01).
- Monthly Insurance Premium (MIP) The monthly insurance premium is a government-required fee for a HECM mortgage. This fee guarantees that you will receive the reverse mortgage loan proceeds even if your loan provider declares bankruptcy or goes out of business. It also insures that you will never owe more than your home is worth. An initial MIP is charged on a HECM reverse mortgage equal to the lesser of 2% of your home’s value or the maximum claim amount. A monthly MIP is also charged equal to 0.5% of the mortgage loan balance.
- Loan Servicing Fee (Service Fee Set Aside) The loan servicing fee is charged for the services performed by the lender during the life of the loan. These services include sending account statements, automatic deposits, loan processing, and other ongoing loan servicing needs. The fee charged by lenders ranges from $30-$35/month. The total servicing fee over the life of the loan is calculated and projected at the time of closing. This total cost is deducted from your available loan proceeds and is NOT an out of pocket expense.
- Counseling Fee For a HECM loan, the government requires a consultation with an independent HUD approved counselor. This mandatory consultation ensures that seniors who are securing a reverse mortgage understand the process and have considered all the costs and benefits of their decision. The counseling fee is typically $100 - $125.
Other Loan Closing Cost
- Appraisal Fee An appraiser is responsible for assessing the current market value of your home. The cost of appraising usually ranges from $300 - $400. If property defects are discovered by the appraiser, a contractor must be hired to finish any repairs. Once completed, payments are made for a second visit by the appraiser to check if repairs have indeed been completed. Repair costs may be financed and completed after the reverse mortgage. In general, $50 - $70 is charged by appraisers for a follow-up examination.
- Credit Report Fee Validates whether federal tax liens, or other judgments, had been made against the property. In general, it costs less than $20.
- Document Preparation Fee Typically around $75 - $150. The final closing papers include the mortgage note and other recordable items.
- Courier Fee Costing less than $50, the documents between the lender and loan investor are mailed overnight.
- Title Insurance This is protection for the lender against losses incurred from property ownership disputes. The insurance cost may differ depending on the size of the loan.
- Pest Inspection Covers the cost of determining termite infestation or any other wood-destroying organisms.
- Flood Certification Fee Ascertains whether the property is situated on a federally chosen flood area. The fee paid is less than $20.
- Escrow Fee For an amount of $150 to $450, a title search and other closing services are performed.
- Survey Fee Performs a survey to determine the official boundaries of the property. Costs under $250.
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