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.
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.
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.
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.
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 (866) 948-0003 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.
“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>