Reverse Mortgage Closing Costs

Reverse Mortgage Closing Costs

Most of the costs associated with a conventional mortgage also apply to reverse mortgages. For most people, the last thing they are considering for these type of loans is the closing costs. The great thing about a reverse loan is you can include all of the closing costs in the loan so you don’t have to pay anything upfront.

The big difference between a conventional mortgage and a reverse mortgage are how the mortgages lenders closing costs are given to you. For a reverse mortgage, you’ll receive a Total Annual Loan Cost disclosure, while from a traditional mortgage, you get a Good Faith Estimate and a Truth In Lending Statement. Through this form, you’ll see the expected yearly costs based on your interest rate. Since these are full disclosure loans, it is required that all the costs are disclosed to you.

There are three main fees associated with a reverse mortgage. The first is the Federal Housing Administration (FHA) Mortgage Insurance Premium (MIP). You’ll also have to pay taxes, the origination fee and the title and closing costs. These fees are usually included in the loan. The only two fees, which are usually paid out-of-pocket are for the required counseling sessions and the home appraisal.

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Mortgage Insurance Premium (MIP)

Reverse mortgages under the HECM program require an upfront insurance premium and annual insurance premium known as MIP. This insurance is for a government guarantee on the loan, protecting you should the lender goes out of business, and ensuring you’ll still receive your monthly payments. This payment will also back the loan to guarantee the total loan amount never exceeds the value of the home when it is sold.

Origination Fee

The origination fee is there to cover the costs of business for the lender. These costs can include office fees, operating expenses, payroll, overhead, and marketing expenses.

Title and Closing Settlement Fees

Title fees are part of ensuring the homeowner’s legal ownership of the property. These are costs associated with any type of mortgage and can vary from state to state. These costs may include:

  • Title Insurance
  • Escrow or Settlement Processing fees
  • Title search
  • Delivery costs
  • Recording
  • Notary costs
  • Reconveyance Fees
  • Document preparation fees

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An appraisal is required to determine the market value of your home. This helps you and the lender know how much money is available through the loan. Appraisals must be completed by an FHA certified and licensed appraiser who will follow set guidelines in evaluating the property. Appraisals usually cost between $300 to $500, depending on your location and the size of your home.

State Specific Fees

State specific fees vary from place to place but they commonly include a credit report, a flood certificate, and escrow settlement.

Service Fee Set-Aside

The Service Fee consists of projected administrative costs for the loan. This is set aside monthly and usually, costs between $25 and $35. The amount is determined by a formula, which calculates the cost based on your life expectancy and age and can also be impacted by your interest rate. The Service Fee is not included in the loan balance and doesn’t accrue interest. Overall, this fee can be several thousand dollars. The remaining portion of the fee will be returned to the borrower.

Interest Rate and Mortgage Insurance

As with any mortgage, interest rates vary depending on the current market climate. Your lender can discuss current rates with you as well as your options for locking them in. Mortgage insurance for the loan will be charged both upfront and annually and must be fully disclosed to you. This amount will vary depending on the amount you borrow, with the fee going up according to the higher the amount borrowed.

Shop Around for the Best Reverse Mortgage Rates and Closing Costs

As with any loan, it is important to shop around to find the best possible interest rate and closing costs for your reverse mortgage. By putting in a little work you can save yourself a lot of money while using a reverse mortgage to put money in your pocket monthly.

Is a reverse mortgage right for you? Fill out our quick 1-minute form to have a Mortgage Advisor contact you.