Reverse Mortgage Lenders - How Much Do They Charge?

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Author: Robin OBrien

Article source: http://www.articledeshboard.com/. Used with author's permission.

Many seniors can greatly benefit from getting a reverse mortgage but many are worried about the charges made against the loan by lenders. Here is a rough breakdown of what to expect.

Just like getting a forward mortgage loan or home equity refinancing, you can expect to pay similar costs when you apply for a reverse mortgage. You will have to pay an origination fee, an up-front mortgage insurance premium for the FHA Home Equity Conversion Mortgage (HECM), an appraisal fee, and certain other closing costs.

These fees and charges can add significantly to the cost of borrowing against the equity in your home, but the good news is that many of the fees are capped. Here's a breakdown of what you can expect to pay although certain programs may be more or less expensive than the fees listed.

Origination Fee

This is what the local lender or broker will charge you in order to cover his expenses and make a large part of his profit on the deal. If you're applying for a HECM reverse mortgage - and more than 90% of people do - the origination fee is equal to the greater of $2,000 or 2 percent of the maximum claim amount. Currently the maximum FHA loan amount varies between $200,160 and $362,790, therefore, the 2 percent origination fee generally lies between $4,003 (2 percent of $200,160) and $7,256 (2 percent of $362,790).

With a Home Keepers program, the originator is capped at charging 2% of the value of the home.

Proprietary programs have no such cappings and can charge whatever they want. Some do away with many of the upfront charges such as the origination fee but you can rest assured they get this money in other ways.

Mortgage Insurance Premium

Under the HECM program, the loan is made in conjunction with a FHA insurance plan that equates to 2% percent of the maximum claim amount, or home value, whichever is less, plus an annual premium equal to 0.5 percent of the loan balance.

Appraisal Fees

This is pretty standard when borrowing money against a home. The lender appoints an appraiser to survey the home to ascertain its value. The appraiser will also make sure there are no major structural defects. Any defects must be first fixed at the homeowners expense and a second inspection is then required. The original inspection usually costs around $400.

Closing Costs

A Credit Report fee costing around $20 that verifies any federal tax liens, or other judgments, handed down against the borrower.
Flood certification fee costing around $20.
A title search costing between $150 and $450.
Document preparation fees costing around $100.
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against any loss arising from disputes over ownership of a property. The cost is directly related to the amount borrowed.
Pest inspection e.g. termites. Costs around $100.
A survey to determine official boundaries. Costs around $250.

Service Fee Set-Aside

This is the amount of money that is set aside to cover the projected costs of servicing the borrower's account. This fee can be between $30 and $35 and is largely determined by the borrower's age. This cost can run into thousands of dollars.

The above is just an outline of what you can expect to pay a reverse mortgage lender. However, charges do vary from lender to lender, program to program, so be sure to ask the lender to give you the exact costs. If you don't understand what you're being told, you should seek advice from an independent financial advisor.

The above is a brief overview; follow the links for more detailed advice on reverse mortgage lenders and reverse mortgage loans as well as more reverse mortgage information.