What are the Costs I will have to Pay For a Reverse Mortgage?
How much does a Reverse Mortgage Cost?
As with any other loan, the interest on a reverse loan is only part of how much it will cost you. There are also closing costs that you must pay; for the Federal Housing Authority’s (FHA) Home Equity Conversion Mortgage (HECM) product, these fees are mortgage insurance premiums (MIP), origination fees, third party charges, and servicing fees. Since HECMs dominate the market, we’ll focus our attention here.Insurance Premiums
When you are taking out one of these loans, you will need to pay a mortgage insurance premium at closing and an annual MIP for the entire life of the loan. The MIP charge at closing is calculated on the lesser of the appraised value of the home or the HECM loan limit, which is currently $679,650. The rate used to vary, but in late 2017 it became 2% for all borrowers. Though this is not an upfront cost, it is important to note that you will also pay an insurance premium throughout the life of the loan. This charge used to be 1.25% of the balance, but in late 2017 it was reduced to .5%Organization Fee
These fees vary from lender to lender, though they are capped by the FHA. For homes that are valued at $125,000 or less, the origination fee is capped at $2,500. For homes worth more than $125,000, the lender is allowed to charge 2% on the first $200,000 and 1% on the value of the home above $200,000, for a maximum of $6,000. Again, there’s a lot of information to digest here, so let’s consider a reverse mortgage rate example or two.- Home Value at $100,000 Since the home value is less than or equal to $125,000, the lender can charge any amount up to $2,500. The fee is not based on a percentage of the home’s value.
- Home Value at $175,000 Since the home is valued at more than $125,000 but less than $200,000, the lender is allowed to charge a maximum of 2% of the home’s value, which in this case is a maximum of $3,500.
- Home Value at $250,000 Since the home is valued at greater than $200,000, the calculation here is a bit more complicated. For the first $200,000, the lender may charge up to 2%. For the remaining $50,000, the lender may charge a maximum of 1%. Here’s how this works out:
Servicing Fee
All home loans require servicing, and HECMs are no different.For those who are not familiar with the term, servicing refers to the maintenance activities that are required throughout the life of the loan, including billing and making sure that the borrower remains current on his or her payments.
With a HECM, servicing includes sending statements about the loan balance, making sure you are paid the proceeds of the loan, and checking to see that you are meeting tax and insurance requirements. If there’s a servicing fee, it’s typically between $25-$35.
If the loan has an interest rate that adjusts every year, the fee may be no greater than $30. If the rate adjusts every month, the cap is set at $35.
The servicing fee for the first month is taken out at closing, and you continue to pay it throughout the life of the loan. These days servicing fees are much less common.
Other Fees
There are other fees, sometimes called third party fees, that you may need to pay as well. These include appraisal and survey fees, title and title insurance fees, and credit checks.As a general rule of thumb, expect these to cost $1000-2000.
Reverse Mortgage Interest Rates
So far, we’ve shown you many numbers but no rates, and there’s a reason for this – they’re difficult to find! Fortunately, the United States Department of Housing & Urban Development publishes statistics on all HECM originations each month.Based on the published data, here are the past two years of average rates. We don’t know what rates will be available to you, but you should be able to get an idea of what’s available by looking at some of the more recent averages.
Current Rates
| DATE | FIXED RATE | ADJUSTABLE RATE |
| 2018-01-01 | 4.90% | 4.65% |
| 2018-02-01 | 4.84% | 4.66% |
Historical Rates
| DATE | FIXED RATE | ADJUSTABLE RATE |
| 2016-01-01 | 4.93% | 3.54% |
| 2016-02-01 | 4.90% | 3.68% |
| 2016-03-01 | 4.94% | 3.81% |
| 2016-04-01 | 4.96% | 3.93% |
| 2016-05-01 | 4.95% | 4.03% |
| 2016-06-01 | 4.94% | 4.10% |
| 2016-07-01 | 4.92% | 4.16% |
| 2016-08-01 | 4.91% | 4.26% |
| 2016-09-01 | 4.92% | 4.44% |
| 2016-10-01 | 4.89% | 4.54% |
| 2016-11-01 | 4.91% | 4.60% |
| 2016-12-01 | 4.89% | 4.68% |
| 2017-01-01 | 4.91% | 4.72% |
| 2017-02-01 | 4.91% | 4.68% |
| 2017-03-01 | 4.95% | 4.58% |
| 2017-04-01 | 4.96% | 4.50% |
| 2017-05-01 | 4.97% | 4.45% |
| 2017-06-01 | 4.99% | 4.40% |
| 2017-07-01 | 4.98% | 4.42% |
| 2017-08-01 | 4.98% | 4.48% |
| 2017-09-01 | 4.98% | 4.48% |
| 2017-10-01 | 4.95% | 4.49% |
| 2017-11-01 | 4.97% | 4.57% |
| 2017-12-01 | 4.95% | 4.63% |
Historical Graph
We can also provide you with information about what determines the cost of interest and provide a few examples for how it could be calculated. First, rates vary based on the program that you choose. Since the vast majority of loans are part of the HECM program, there is no need to worry much about the difference between government and private products, though in general the interest cost of a HECM should be lower since the loan is backed by the FHA.Source: reversemortgagealert
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