Almost all costs can be financed, that is, they can be paid from the proceeds of your HECM Reverse Mortgage. Costs include origination fee, third-party closing costs, FHA insurance premium, servicing fees, and interest.
The only out-of-pocket cost is the fee to appraise your home. The fee for an FHA Certified Appraisal usually ranges from $450 to $550, depending on your area.
ORIGINATION FEE
The Origination Fee on HECM Reverse Mortgages is limited to 2% of your home’s value or your county’s 203-b limit, whichever is less, or a $2,000 minimum.
FHA INSURANCE
The FHA Insurance Premium on HECM Reverse Mortgages is 2% of your home’s value or your county’s 203-b limit, whichever is less, at closing and 0.5% is added above the interest rate after the first year.
OTHER COSTS
Third party closing costs include appraisal fee, title insurance and escrow fees, county taxes and recording fees, inspections/certifications, credit check, flood certification, property taxes, and your homeowner’s insurance. These costs vary somewhat with the value, state, and county of your home, but typically range from seventeen ($1,700) to twenty-five ($2,500) hundred dollars.
In addition to up-front fees, mentioned above, the following fees are incurred durring the life of your HECM Reverse Mortgage:
SERVICING FEE
The servicing fee is limited to $35 a month for a monthly adjustable H.E.C.M. or $30 a month for both the fixed rate and annual adjustable H.E.C.M.s You choose whether the fixed rate, monthly or annual fits you best. This does not mean you will have a $35 or $30 monthly payment to make. Again, you are not required to make any payments. The servicing fee is simply added to the amount you owe, every month. On traditional “forward” mortgages, the cost of servicing is added to the interest rate. You may not have seen this fee before, but you’ve paid it.
INTEREST
The interest rate on HECM Reverse Mortgage loans is typically adjustable. This means that the rate can both increase and decrease over time. The lender does not have control nor discretion over what the rate will be or how it will change over time. Some HECM Lenders offer fixed rate HECM Reverse Mortgages, but require upfront draws.
ANNUALLY
Choosing the annual adjustable H.E.C.M. means that the rate will change once each year. Any change in this rate must be the same change that occurred in the index it is tied to (usually the one-year Treasury rate), is limited to a 2% adjustment per year and has a 5% lifetime adjustment cap.
MONTHLY
Choosing the monthly adjustable H.E.C.M. means that the rate will change once every month. Any change in this rate must be the same change that occurred in the index it is tied to (usually the one-year Treasury rate) and is limited to a 10% lifetime adjustment cap.
FIXED
Choosing the fixed rate H.E.C.M. provides for better predictability of your overall costs, however Lenders typically require that you borrow the entire amount of funds that you are eligible for, at closing.
