Reverse Mortgage Costs
By Don Seibert
The Typical Costs Associated with a Reverse Mortgage for Seniors
There are various costs that will be incurred during the process of obtaining a reverse mortgage for seniors. The list of costs for a typical home equity mortgage probably include home owner’s insurance, origination fees, appraisal fees, and closing costs. The list of costs of a reverse mortgage is much the same, with a few subtle differences.
Most reverse mortgage lenders will require an origination fee. This fee covers the lender’s overhead costs of preparing the reverse mortgage. The amount of your origination fee will vary depending on the lender, the value of the home and the type of reverse mortgage that you get. If you get a HUD reverse mortgage, for example, you will pay either $2,000 or two percent of the maximum FHA limit, whichever is greater. Under the Fannie Mae Home Keepers loan, the origination fee will not be more than two percent of the value of the home.
The Federal government handles the Reverse Mortgage for Senior program through the Federal Home Administration (FHA) in the Department of Housing and Urban Development (HUD), which handles the insurance. Rather than being required to obtain home owner’s insurance, you will be required by the FHA to pay a mortgage insurance premium. This premium allows HUD to back reverse mortgage loans, and pay any amount due once the home has been sold to repay the loan. This becomes particularly important in the event that you outlive the term of the Reverse Mortgage loan. You will continue to receive your monthly payments thanks largely to this HUD insurance. The premium also provides funding for HUD to ensure that your loan will be serviced regardless of what may happen to your loan service provider during the course of the reverse mortgage.
Like other home equity mortgages, you will be required to cover the cost of an appraiser in your reverse mortgage. The appraiser evaluates your home and determines its value as well as the amount of equity in the home. This cost is required, as the appraisal value of your home is one of the deciding factors for your reverse mortgage loan amount. Proprietary Reverse Mortgage loans, made by private companies (and not insured by the government) often have higher mortgage limits. If you home is valued at much over $200,000, it may be wise to shop of a proprietary reverse mortgage loan.
Closing costs and many other costs for your reverse mortgage may also apply. These reverse mortgage costs may include such things as credit reporting fees, document preparation, recording fees, courier fees, title insurance, and/or a survey of the property to determine boundaries. Overall, the cost of your reverse mortgage will likely equal thousands of dollars. The good news, however, is that all or most of the cost of your reverse mortgage will be rolled into the loan amount, so that up front costs are minimal. Because of all of these costs, it usually is not advisable to enter into a reverse mortgage unless you plan on living in your home for at least 5 more years.
The reverse mortgage for senior program can be very beneficial for seniors in certain situations. It really pays to do your homework and know what you are getting into and just what costs are involved.
Don Seibert is a retired business executive who, as an Expert Author, writes timely articles on many issues concerning retirement.
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