Reverse Mortgage Costs

People interested in getting a reverse mortgage, need to know the typical costs that are involved in order to make an educated choice. Just like most home loans, the typical mortgage fees apply to reverse mortgages. Typically you will be chareded an origination fee, up-front mortgage insurance premium (HECM loans), an appraisal fee, and other standard closign fees.

In many cases, these fees can be financed as part of the reverse mortgage. This makes it even more important to look at the fees because you will not be paying them upfront, so they can be easy to look over. Here is a quick run down of the typical fees:

Origination Fee
The origination fee is charged by the lender to cover certian operating expenses like administrative costs, marketing costs related to the reverse mortgage.

For HECM reverse mortgages, which account for 90 percent of all reverse mortgages made in the U.S., the origination fee will be set to the greater of $2,000 or 2 percent of the maximum claim amount. Currently the limites vary by county, from $200,160 up to $362,790. This means the 2 percent origination fee will generally be between $4,003 and $7,256. Home Keeper reverse mortgages from Fannie Mae charge borrowers an origination fee that may not exceed 2 percent of the value of the home. With either product, the entire amount of the origination fee may be financed as part of the mortgage.

Mortgage Insurance Premium
For HECM reverse mortgages, borrowers are charged a mortgage insurance premium equal to 2 percent of the maximum claim amount, or home value, whichever is less, plus an annual premium equal to 0.5 percent of the current loan balance.

The mortgage insurance guarantees that if the company managing your reverse mortgage goes out of business, the government will step in and make sure you have continued access to your loan funds. In addition, the mortgage insurance guarantees that you will never owe more than the value of your home when the HECM must be repaid.

Appraisal Fee
As with any home loan, an appraisal will be ordered to determine the current market value for your home. Appraisal fees generally range from $250 to $400.

Standard Closing Costs
Here is a list of other standard costs that you will typically be charged as a reverse mortgage borrower:

• Credit report fee (~$20): Verifies any federal tax liens, or other judgments, handed down against the borrower.


• Flood certification fee (~$20): Determines whether the property is located in a federally designated flood plane.


• Escrow, Settlement or Closing fee ($150-$450): Generally includes a title search and various other required closing services.


• Document preparation fee ($75-$150): Fee charged to prepare the closing documents, mortgage note, and other recordable items.


• Recording fee ($50-$100): Fee charged to record the mortgage lien with the County Recorder's Office.


• Courier fee (~$50): Fee to cover the cost of any overnight mailing of documents between the lender and the title company or loan investor.


• Title insurance (based on loan amount): Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against any loss arising from disputes over ownership of a property.


• Pest Inspection (~$100): Determines whether the home is infested with any wood-boring organisms, such as termites.


• Survey ($150-$250): Determines the official boundaries of the property.

Service Fee Set-Aside
The service fee set-aside is an amount of money deducted from the available loan proceeds at closing to cover the projected costs of servicing your account.

Federal regulations allow the loan servicer to charge a monthly fee that ranges between $30-$35. The amount of money set-aside is largely determined by the borrower's age and life expectancy. Generally, the set-aside can amount to several thousand dollars. (Note: The servicing set aside is just a calculation and not a charge. The only amount added to your loan balance is the monthly servicing fee, which ranges from $30-$35.)

Renting Your Reverse Mortgaged Home?

The following article from Bob Bruss contains some excellent information on what happens when someone with a reverse mortgage moves into a nursing home. In this case, this could mean having to sell her home.

Q: DEAR BOB: My 90-year-old mother-in-law, who recently moved into a nursing home, has a reverse mortgage on her home to pay her living costs. My husband is to inherit her house after she dies. We plan to demolish the house and put a new house on the property. What are the financial ramifications of renting the house to tenants until her death? My husband is reluctant, but I don't want to see the house sitting there vacant, when it could bring in $2,000 monthly rent. -- Elaine H.

A: DEAR ELAINE: Because your mother-in-law moved out of her principal residence, her reverse mortgage will become due and fully payable in full after 12 months of her not occupying the house. Reverse mortgage lenders periodically check up on their borrowers to see if they are still alive and are occupying their primary residence, except for absences less than 12 months.

If the house is rented to a tenant, when the reverse mortgage lender discovers the owner no longer lives there, the lender can require the loan balance be paid in full or it will be put into foreclosure. For more details, read the reverse mortgage documents and consult a lawyer.

Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, http://www.bobbruss.com