Reverse Mortgage Fees and Costs: What Seniors Need to Know

Just like conventional mortgage loans, there are certain reverse mortgage fees that borrowers will be required to pay in order to obtain a loan. To make these fees more affordable, all costs can be financed into the reverse mortgage. While critics often complain that reverse mortgage costs are unusually high, most fees are the same as those required to obtain a forward mortgage loan. rnUnderstanding the Primary Reverse Mortgage Fees There are a few reverse mortgage fees that borrowers should understand prior to pursuing a reverse mortgage. These fees include the: ● Origination Fee: The origination fee is charged by the lender to cover the costs of supplying the loan. Lenders can charge up to 2% for the first $200,000 of the home’s value and 1% of any amount over $200,000. The entire origination fee can equal no more than $6,000. ● Mortgage Insurance Premium (MIP): An upfront mortgage insurance premium of 2% or 0.01% will be charged depending on whether a borrower chooses the HECM Standard or HECM Saver. Borrowers will also be charged an annual MIP equal to 1.25% of the loan balance. ● Appraisal Fee: An appraisal is required to determine the value of a borrower’s home. In addition to paying for an appraisal, borrowers will be required to pay a survey fee. This covers the cost of having a professional confirm the property’s boundaries. ● Counseling: Before applying for a reverse mortgage, seniors are required to attend one HUD-approved counseling session. This session can cost up to $125. ● Loan Servicing Fees: Seniors who choose to receive their loan proceeds as a line of credit or in monthly installments will be required to pay monthly servicing fees. These fees typically cost between $30 and $35 and are financed into the loan. ● Closing Costs: There are a number of closing costs that borrowers will be required to pay in order to close their loan. Some of these fees include the document preparation fee, courier fee, and a closing fee charged by the title company. Borrowers might also pay for a title search, title examination, and title insurance. These fees cover the cost of searching county records, reviewing the title, and insuring the lender against losses due to defects in the title. rnAdditional Reverse Mortgage Costs In addition to the primary fees, there are several smaller reverse mortgage costs that borrowers are expected to pay. These costs include a credit report fee, pest inspection, and flood certification fee. If a borrower is required to make important home repairs, a repair administration fee of up to 1.5% of the repair bid will also be applied. Depending on the state, borrowers might also be required to pay a few additional reverse mortgage fees. For instance, Minnesota borrowers are expected to pay a mortgage registration tax to their county. To understand all pertinent reverse mortgage costs, borrowers are urged to discuss any confusing costs with their lender. While there are several different reverse mortgage fees, it is important for potential borrowers to understand that these fees are strictly regulated. Lenders cannot increase fees over a certain limit or charge borrowers unnecessary “junk fees.” In fact, many of the fees charged to borrowers do not even go to their lender. Instead, this money is used to pay the many entities that help during the loan process, such as the title company, appraiser, and mortgage counselor. Although the cost to obtain a loan may seem high, the benefits of these loans are often invaluable. For seniors struggling to survive on a limited income, a reverse mortgage might be the key to keeping them in their home and financially solvent during retirement.