Up Front Costs of A Reverse Mortgage
When researching reverse mortgages, a key question that
comes up is what are the fees associated with the loan. Reverse mortgages that
are insured by the federal government, specifically the Federal Housing Administration
(FHA), are called Home Equity Conversion Mortgages (HECMs). The fees for HECMs are strictly regulated to
ensure borrowers are not overcharged. A
summary of the fees can be found below.
Reverse mortgage fees are generally found in three categories:
- Origination Fee – The mortgage lender may charge a loan origination fee. FHA caps the fee that can be charged to the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. The maximum origination fee that can be charged on a HECM is $6,000.1 For example if your home is valued at $90,000, the max origination fee that can be charged is $2,500. This is based on the greater of 2% of $90,000 ($1,800) or $2,500. If your home is valued at $250,000, the max origination fee that can be charged is $4,500. This is based on 2% of $200,000 ($4,000) plus 1% of $50,000 ($500).
- Upfront Mortgage Insurance Premium (UFMIP) –The UFMIP is based on the Max Claim Amount, which you can learn more about here. The UFMIP is insurance paid to FHA and covers both the borrower and the lender. To protect the borrower if the lender goes out of business, the government will make sure you still have access to the full amount of equity available to you. To protect the lender if your home value cannot cover your loan balance at the time the loan becomes due, the government makes up the difference to the lender.
- Third Party Costs –These closing costs for a reverse mortgage are similar to that of a conventional mortgage. They can include but are not limited to, fees for an appraisal, title search, and insurance, surveys, inspections, recording fees and taxes, and credit checks. Also included in this category is the fee for reverse mortgage counseling, which is required on all HECMs.
Like conventional mortgages, these up-front costs can be
financed into the loan. Interest does accrue on these fees over time if you
choose to go this route. You may want to consider how long you will be living
in your current home before deciding to get a reverse mortgage. If you are
planning on moving in a year or two, the closing costs of a standard reverse
mortgage may not be worth getting the loan. However, if you’re looking to
downsize from your current home, a HECM-for-Purchase may work for you. A HECM-for-Purchase is a reverse mortgage
that allows borrowers to finance a new home.
The up-front costs covered above are not all-inclusive of
the fees that you may incur. If you are considering a reverse mortgage loan,
find out your closing costs and how much you may be eligible for by calling
1-800-976-6211 for a personalized quote from a licensed loan advisor.
1United States Department of Housing and Urban
Development. Single Family HECM. https://www.hud.gov/program_offices/housing/sfh/hecm/hecmabout