![]() ![]() Interest on the loan balance grows at the effective rate:Įffective Rate = One-month LIBOR Rate + Lender’s Margin + Annual Mortgage Insurance Premium (1.25%) Servicing fees can be up to $35 per month, though they are generally now incorporated into a higher margin rate rather than charged directly to the borrower. The ongoing costs for a reverse mortgage relate to the interest accruing on any outstanding loan balance, as well as any servicing fees. You should plan to remain in your home for a sufficiently long period to justify payment of any upfront costs. ![]() If upfront costs are financed, the remaining net PLF available through the reverse mortgage would be the amount left after subtracting these costs. The upfront costs could be paid from other resources or financed from the proceeds of the reverse mortgage loan and repaid later with interest. ![]() This range is also consistent with the numbers found on the calculator created by the National Reverse Mortgage Lenders Association. A 2011 AARP report estimated that typical closing costs fall into a range of $2,000 to $3,000. If the appraisal shows shortcomings for the home that could impact health or safety, then additional home repairs may be required as part of setting up the reverse mortgage. These costs include the FHA-mandated counseling session, home appraisal costs, credit checks, and any costs related to titling. These will be similar to closing costs experienced with any type of mortgage. If the home value cannot cover the loan balance, the government will make up the difference for the lender.įinally, you have closing costs. The protection ensures the consumer will have access to their full principal limit even if the lender goes out of business, and the lender is protected for the non-recourse aspect of the loan. The purpose of the mortgage insurance premium is to cover the guarantees provided by the FHA to the lender and consumer. For those staying under the 60% threshold, the initial mortgage insurance premium is $500 per $100,000 of home value, up to $3,128 for the $625,500 limit. Since October 2013, it has been sitting at 0.5% of the home value (up to $625,500) if the borrower takes out less than 60% of the PLF in the first year, and 2.5% if taking out more than 60% of the PLF in the first year. Some lenders also offer lower origination fees for borrowers willing to accept a higher lender’s margin, which can be an attractive option for those thinking of opening a line of credit and saving it for retirement.Ī second source of upfront costs is the initial mortgage insurance premium paid to the government, which is based on the value of the home. I saw a lender that quoted total upfront costs of $125 for the required counseling session with a $0 origination fee, along with credits to cover the mortgage insurance and other closing costs described in the following paragraphs. Origination charges for smaller lenders may be much less, and some might even provide credits rather than charges for the origination fee as they earn revenue primarily by originating loans to sell on the secondary market rather than through charging origination fees. Larger lenders with national advertising campaigns may charge the full allowed amounts, as their customers are less likely to engage in comparison shopping and may not recognize these fees as negotiable. These fees are the maximum allowed by the government. If this calculation leads to a fee below $2,500, the lender may charge up to $2,500. For homes worth more than $400,000, the maximum origination fee is $6,000. For homes worth between $200,000 and $400,000, the maximum allowed origination fee is $4,000 plus 1% of the home’s value above $200,000. ![]() With the HECM program, these fees are currently allowed to be up to 2% of the home value for homes worth $200,000 or less. First, the mortgage lender can charge an origination fee. Upfront costs for reverse mortgages come in three categories. ![]()
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