How much will a reverse mortgage loan cost?
The cost of a reverse mortgage loan will depend on the type of loan and the lender you choose. Typically, a reverse mortgage loan is more expensive than other home loans.
With a reverse mortgage loan you will owe the money you borrowed as well as interest and fees. Unlike traditional mortgage loans, the amount you owe on a reverse mortgage loan will grow over time.
What will reverse mortgage counseling cost?
Borrowers taking out a HECM reverse mortgage loan, must receive counseling from a HUD-approved reverse mortgage counselor before receiving the loan.
Housing counseling costs will vary depending on the agency and your individual situation. The housing counseling agency must make a determination about your ability to pay, which should include factors, including, but not limited to, income and debt obligations. HUD approved housing counseling agencies may charge you a reasonable fee, but they cannot charge you a fee if you can’t afford it and must explain all charges prior to counseling.
What are the other upfront costs of reverse mortgages?
Like with a traditional mortgage, borrowers will typically have to pay one-time upfront costs at the beginning of the reverse mortgage loan. These costs include:
- Origination fees (which cannot exceed $6,000 and are paid to the lender)
- Real estate closing costs (paid to third-parties) that can include an appraisal, title search, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees
- An initial mortgage insurance premium: There is an initial and annual mortgage insurance premium charged by your lender and paid to the Federal Housing Administration. Mortgage insurance guarantees that you will receive your expected loan advances. This insurance is different and in addition to what you have to pay for homeowners insurance.
You can pay these costs in cash or by using the money from your loan. If you use your loan proceeds to pay for upfront costs, you won’t have to bring any money to the closing, but the total amount of money you’ll have available from the reverse mortgage loan proceeds will be less.
What are the ongoing costs for reverse mortgages?
Ongoing costs are added to your loan balance each month. This means that each month you are charged interest and fees on top of the interest and fees that were added to your previous month’s loan balance. Ongoing costs may include:
- Servicing fees paid to your lender to cover such costs as sending you account statements, distributing your loan proceeds, and making certain that you keep up with the loan requirements
- Annual mortgage insurance premium which is 0.5% of the outstanding mortgage balance and
- Property charges such as homeowners insurance and property taxes, and if applicable, flood insurance.
The larger your loan balance and the longer you keep your loan, the more you will be charged in ongoing costs. The best way to keep your ongoing costs low is to borrow only as much as you need.
Note: This information only applies to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loan.