Cost of a Reverse Mortgage

The interest rate on a reverse mortgage will depend on several factors: the bank you use, current rates when you applied and the type of loan you select - fixed-rate or adjustable. Fixed rates are typically comparable to traditional mortgage rates. The interest rates on an adjustable-rate loan can change monthly or annually, based on the London Interbank Offered Rate Index or LIBOR. This option does provide more disbursement options than the fixed rate loan, however.

Fees and charges you may encounter in obtaining a reverse mortgage include:

Mortgage Insurance Premium (MIP)
With a reverse mortgage you will be charged an upfront MIP to ensure you receive your loan advances in the event the company managing your account (your loan servicer) goes out of business. 2.0% of the maximum loan amount, the home's appraised value, will be charged to all borrowers. You will also pay an annual mortgage insurance premium, equal to 0.5% of the outstanding mortgage balance for the life of your loan.

Origination Fee
Origination fees can range from $0 to the capped amount of $6,000 depending on the property value. Origination fees will cover the lender's costs for processing your loan. This is the only fee directly paid to your lender.

Servicing Fee
Lenders can charge a monthly servicing fee of $25-35 if the loan has an annually adjusting interest rate or if the rate adjusts monthly. This fee will cover lender costs of sending your checks, account statements, plus any additional customer service.

Third Party Charges
Borrowers may also encounter a number of routine mortgage related fees, such as an appraisal, survey, inspections, title, recording fees and credit fees.

Factors that Influence Loan Amount

There are several factors, to keep in the mind, that determine the amount of funds you are eligible to receive through a HECM reverse mortgage. These factors include:

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Your age (or age of the youngest borrower on the loan).

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Value of your home.

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Interest rate.

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HECM FHA mortgage limit of $636,150.

One of the most appealing things about the reverse mortgage is that you don't make monthly mortgage payments like a traditional mortgage, as long as you live in the home as your primary residence, pay your taxes and insurance, and keep current with home maintenance.

What Happens When the Loan Becomes Due

When the loan needs to be repaid, once the remaining borrower and spouse has died or moves from the property, heirs to the home will have a few options depending on the remaining equity.

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Keep the property

Heirs can decide to keep the property, but would need to pay off the balance owed, or at least 95% of the current appraised value. This can be done through their own funds or by refinancing the existing mortgage.

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Sell the property

Heirs can decide to sell the property and keep and proceeds from the sale after the reverse mortgage has been paid off. Heirs are given 6 months to sell the home.

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Walk away

Heirs can decide to walk away if the property has little to no equity left in the value of the home. If the mortgage is underwater, which means the balance owed is greater than the value of the home, most loan documents stipulate that upon the homeowner's death or cessation of the residence, homes with mortgage balances greater than their value will be repossessed.

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"Maturity Events" that cause my loan to become due include:

  • Sells or transfers the home
  • Passes away
  • Does not pay homeowner's insurance or property taxes
  • Leaves the home permanently or for more than 12 consecutive months
  • No longer occupies the home as their primary and principal residence
  • Defaults under the loan terms of the reverse mortgage