COSTS CAN VARY DEPENDING ON THE PERCENTAGE OF FUNDS THAT YOU INITIALLY DRAW AND/OR THE PRODUCT YOU CHOOSE. YOU MAY QUALIFY FOR A REDUCED OR NO FEE REVERSE MORTGAGE PRODUCT – CALL, EMAIL OR CHAT WITH US TO LEARN MORE
Reverse Mortgage closing costs typically consist of: the initial FHA mortgage insurance premium (IMIP), the origination fee, and title fees. The only out of pocket (instead of being ﬁnanced) expense is the appraisal.
Initial Mortgage Insurance Premium
The initial mortgage insurance premium (IMIP) is either .5% or 2.5% of the property value up to the HUD property value limit ($625,500). The premium amount is determined by the percentage of funds that are used upfront. The FHA insurance provides three guarantees:
- The homeowner cannot “outlive” the reverse mortgage
- The homeowner and heirs will not be liable if the balance of the loan exceeds the value of the home (a reverse mortgage cannot become “upside-down”)
- The FHA will take over the loan if the lender becomes ﬁnancially troubled
The origination fee is what the reverse mortgage lender earns on the loan. The FHA uses a formula to determine what the lender can charge. The formula is:
- 2% of the ﬁrst $200,000 of property value and 1% of the second $200,000 of property value
- An absolute maximum of $6,000
- A ﬂoor of $2,500
Senior Finance will reduce or even completely waive the origination fee depending on the loan circumstances and product chosen.
Title guarantees the homeowner’s legal ownership of the property and is required for all mortgages whether reverse or conventional. The largest part of title fees is title insurance. Title fees are usually broken down into:
- Title insurance (varies by state and with property value)
- Title settlement
- Title search/exam
- Payoff (if a mortgage is being paid off)
- Doc prep
The appraisal establishes the legal value of the home. A reverse mortgage appraisal is special is conducted by an FHA-approved appraiser and follows speciﬁc FHA guidelines that require more documentation than a typical appraisal. A typical FHA appraisal costs $425-$475 depending on the state. Multi-family properties will cost more.
Other closing costs
- Wire Fee
- Flood Certfication
- Credit Report
A reverse mortgage accrues interest just like a traditional mortgage except that the homeowner is not required to make monthly to reduce the loan balance. As a result the loan balance grows until the homeowner permanently moves out of the property or passes away.
Two-thirds of reverse mortgage holders have adjustable rate reverse mortgages because the rate is usually lower than a ﬁxed rate. Because the homeowners do not make monthly payments, homeowners are not usually as concerned about possible future changes in the interest rate.
Interest rates and Ongoing mortgage insurance
Over the last few years, the actual interest rate on a reverse mortgage has ﬂuctuated between 2% and 5%. An additional 1.25% ongoing mortgage insurance premium is added to the loan balance annually on both the Fixed and Adjustable products. For example, if the quoted rate is 2.25%, the rate with insurance is 3.50%.
Reverse mortgage interest rates are sort of a double-edged sword, especially with the Adjustable product credit line. The lower the margin you choose, the less interest will be charged on what has been used – at the same time, your unused portion of the line of credit will be subject to less growth. The higher the margin you choose, the higher interest charge will also affect your line of credit growth – giving you access to more money over time. The monthly/annual interest rate will always equal the monthly/annual growth rate.