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Reverse Mortgage Fees

Reverse Mortgage Fees

When considering a reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), some homeowners may worry about coming up with the cash to cover any up-front fees. However, insured by the Federal Housing Administration (FHA), the HECM allows a borrower to roll some reverse mortgage fees into the total amount of the loan, resulting in very minimal out-of-pocket costs.

Some reverse mortgage fees are added to the loan’s principal and are due only when the loan itself is due, which happens if either the last borrower permanently leaves the home, fails to pay property taxes and insurance, or otherwise does not comply with the loan terms. Common fees that may be able to be rolled into the total amount of the loan include the following.

What is the loan origination fee?

The loan origination fee covers the lender’s operating costs. However, because a HECM is government-insured, lender origination fees for the loan are tightly regulated and capped.

What is FHA Mortgage Insurance Premiums (MIP)?

With federal insurance of the HECM comes a mortgage insurance premium. This protects a borrower in many ways, guaranteeing that the federal government will step in to cover the loan if it surpasses the amount the house is worth when sold, or if the lender goes out of business. With the MIP, borrowers are able to rest assured that they will receive their funds no matter what.

What are the interest rates?

Like other loans, a reverse mortgage comes with interest charged. Reverse mortgage interest rates are determined based upon whether they are fixed or variable, with variable reverse mortgage rates tied to an index plus a margin. Interest is only charged toward any proceeds borrowers received and is also financed into the loan. Because most borrowers do not pay the interest accrued every month, the interest is compounded and added to the loan balance.

What are the Out-of-Pocket Fees for a reverse mortgage?

As with any mortgage, borrowers should expect to have miscellaneous fees and closing costs. These are common out-of-pocket costs and fees related to getting a reverse mortgage loan. Depending on the situation, some of these fees may sometimes be financed into the loan as well:

  • Counseling Fee
  • Appraisal Fee
  • Credit Report
  • Title Insurance
  • Inspection Fees such as Pest
  • Flood Certification Fee
  • Recording Fees

At American Advisors Group, your Reverse Mortgage Professional can fully explain any reverse mortgage fees you may encounter for your reverse mortgage. Some may even be waived or not mandatory. In addition, because the U.S. Department of Housing and Urban Development’s FHA heavily regulates the reverse mortgage loan, lenders do not add any extra fees. Call (800) 224-9121 to talk to your American Advisors Group Reverse Mortgage Professional today, and find out just how low your up-front out-of-pocket fees can get.

Sources:

“FHA HUD Consumer Fact Sheet for HECM.” HUD.gov. n.d. Web. July 16, 2014. http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_13006.pdf

“What are the Costs I will Have to Pay for a Reverse Mortgage?” ConsumerFinance.gov. April 17, 2014. Web. July 16, 2014. <http://www.consumerfinance.gov/askcfpb/237/what-are-the-costs-i-will-have-to-pay-for-a-reverse-mortgage.html>

“Your Road Map to a Reverse Mortgage: Application, Fees, & Disclosure.” ReverseMortgage.org. n.d. Web. July 16, 2014. <http://www.reversemortgage.org/YourRoadmap/4ApplicationFeesDisclosures.aspx>

Santiago, Steve. “The Ins and Outs of Reverse Mortgages.” Bankrate.com. n.d. web. July 16, 2014. <http://www.bankrate.com/finance/financial-literacy/the-ins-and-outs-of-reverse-mortgages-3.aspx>

What is the loan origination fee?

The loan origination fee covers the lender’s operating costs. However, because a HECM is government-insured, lender origination fees for the loan are tightly regulated and capped.

What is FHA Mortgage Insurance Premiums (MIP)?

With federal insurance of the HECM comes a mortgage insurance premium. This protects a borrower in many ways, guaranteeing that the federal government will step in to cover the loan if it surpasses the amount the house is worth when sold, or if the lender goes out of business. With the MIP, borrowers are able to rest assured that they will receive their funds no matter what.

What are the interest rates?

Like other loans, a reverse mortgage comes with interest charged. Reverse mortgage interest rates are determined based upon whether they are fixed or variable, with variable reverse mortgage rates tied to an index plus a margin. Interest is only charged toward any proceeds borrowers received and is also financed into the loan. Because most borrowers do not pay the interest accrued every month, the interest is compounded and added to the loan balance.

What are the Out-of-Pocket Fees for a reverse mortgage?

As with any mortgage, borrowers should expect to have miscellaneous fees and closing costs. These are common out-of-pocket costs and fees related to getting a reverse mortgage loan. Depending on the situation, some of these fees may sometimes be financed into the loan as well

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These materials are not from HUD or FHA and were not approved by HUD or a government agency.

©2024 American Advisors Group/AAG are divisions of Finance of America Reverse LLC which is licensed nationwide* | Equal Housing Opportunity | NMLS ID # 2285 (www.nmlsconsumeraccess.org) | 8023 East 63rd Place, Suite 700 | Tulsa, OK 74133 | AZ Mortgage Banker License #0921300 | Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act | Georgia Residential Mortgage Licensee #23647 | Kansas Licensed Mortgage Company | Massachusetts Lender/Broker License MC2285: Finance of America Reverse LLC | Licensed by the N.J. Department of Banking and Insurance | Licensed Mortgage Banker — NYS Banking Department where Finance of America Reverse is known as FAReverse LLC in lieu of true name Finance of America Reverse LLC | Rhode Island Licensed Lender | Not all products and options are available in all states | Terms subject to change without notice | For licensing information go to: www.nmlsconsumeraccess.org

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FAReverse LLC i/l/t/n Finance of America Reverse LLC is Licensed Mortgage Banker in the State of New York, but this site is not authorized by the New York State Department of Financial Services. No mortgage solicitation activity or loan applications for properties located in the State of New York can be facilitated through this site.

For Reverse Loans: When the loan is due and payable, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to borrowers, who may need to sell the home or otherwise repay the loan with interest from other proceeds. The lender may charge an origination fee, mortgage insurance premium, closing costs and servicing fees (added to the balance of the loan). The balance of the loan grows over time and the lender charges interest on the balance. Borrowers are responsible for paying property taxes, homeowner’s insurance, maintenance, and related taxes (which may be substantial). We do not establish an escrow account for disbursements of these payments. A set-aside account can be set up to pay taxes and insurance and may be required in some cases. Borrowers must occupy home as their primary residence and pay for ongoing maintenance; otherwise the loan becomes due and payable. The loan also becomes due and payable (and the property may be subject to a tax lien, other encumbrance, or foreclosure) when the last borrower, or eligible non-borrowing surviving spouse, dies, sells the home, permanently moves out, defaults on taxes, insurance payments, or maintenance, or does not otherwise comply with the loan terms. Interest is not tax-deductible until the loan is partially or fully repaid.

STATE OF ILLINOIS COMMUNITY REINVESTMENT NOTICE The Department of Financial and Professional Regulation (Department) evaluates our performance in meeting the financial services needs of this community, including the needs of low-income to moderate-income households. The Department takes this evaluation into account when deciding on certain applications submitted by us for approval by the Department. Your involvement is encouraged. You may obtain a copy of our evaluation. You may also submit signed, written comments about our performance in meeting community financial services needs to the Department. V2024.02.20

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