Almost all Reverse Mortgage 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.
OUT-OF-POCKET COSTS
The only out-of-pocket costs are:
(1) The fee charged by the HUD-approved housing counselor. (Typically $125 but can be waived by the counseling agency if you meet certain financial qualifications.);
and
(2) The fee to appraise your home. (Usually ranges from $400 to $550, depending on your area.)
The remaining costs can all be financed.
ORIGINATION FEE
The Origination Fee on HECM Reverse Mortgages is limited to:
2% of the first $200,000 of your home’s value;
plus
1% of the amount over $200,000.
The minimum Origination Fee that a lender can charge is $2,500 and the maximum Origination Fee is $6,000.
FHA INSURANCE
The FHA Insurance Premium on HECM Reverse Mortgages is 2% of your home’s value or of the FHA HECM loan limits, (whichever is less) and 0.5%, which is added to the interest rate after closing.
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-adjustable or annual-adjustable 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 on a Reverse Mortgage until the end of the loan. 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 can be adjustable or fixed. Adjustable rates 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. Many HECM Lenders now offer fixed rate HECM Reverse Mortgages, but fixed HECMs typically require you to receive all your proceeds as a lump-sum.
ANNUALLY-ADJUSTABLE
Choosing the annual-adjustable H.E.C.M. means that the rate will change once each year. Changes in this rate are limited to a 2% adjustment per year and a 5% lifetime adjustment cap.
MONTHLY-ADJUSTABLE
Choosing the monthly-adjustable H.E.C.M. means that the rate will change once every month. Changes in this rate are 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 most, if not all, Lenders require that you borrow the entire amount of funds you are eligible for, at closing.
