According to a recent AARP study 31.6 percent of seniors have experienced a substantial decline in home values in the past three years, and a fourth have exhausted their personal savings. Overall, more than half of those surveyed age 50+ were not too or not at all confident that they will have enough money to live comfortably throughout their retirement years. One-third of respondents also mentioned that delaying retirement was an option they were considering while two out of five decided that they would likely work part-time during their retirement years. It’s unfortunate that many individuals in these situations consider working or exhausting their personal savings because they are either unaware that a reverse mortgage could help them or they think that the fees are too high to truly consider it an option. However if individuals considering a reverse mortgage compare reverse mortgage fees to costs associated with the alternatives they may find that it’s all relative. Rather than depleting personal savings or retirement accounts they could have tapped into the equity in their home receiving tax-free funds to cover their expenses.
The two most significant closing costs can be:
1. FHA mortgage insurance premium (MIP)
Cost: The initial insurance premium is 2% of the home’s value for the HECM Standard option, and just .01% for the HECM Saver option. Both have an annual MIP that is 1.25% of the mortgage balance.
What is it?: It provides two guarantees: the estate will not be personally liable if the payoff balance exceeds the home’s value (“upside-down”), the FHA will pay out loan proceeds if the lender cannot.
2. Origination Fee
Cost: Maximum of $6,000. The maximum fee set by law is 2% of the first $200,000 of property value and 1% of $200,000 to $400,000 of value up to the max available fee.
What is it?: The origination fee is the lender’s fee.