What You Need to Know about the Cost of Reverse Mortgage
Do you want to know how much lenders charge for reverse mortgage loans
? Be prepared to do some research because the costs vary from lender to lender. Knowing the fees and charges for this loan will enable you to get a good deal from the lender.
Cost of FHA Mortgage Insurance Premium
If you take out a reverse mortgage loan, you have no obligation to repay it as long as you live in the mortgaged home. In case you will transfer residence, the lender, your heir, or you can sell the property without leaving any debt. This is possible because the insurance ensures that you will never owe more than the value of your home.
The lender is also protected by the insurance. If the loan principal and interest is greater than the sale value, the insurance will cover the difference. The mortgage insurance can also ensure that you will get the cash advances during the servicing of the loan.
The FHA is responsible for collecting the insurance premium from you. You will have to pay a one time insurance rate of 2 percent of the maximum amount borrowed. This can be paid at closing. You also have to pay 0.5 percent annual or monthly insurance charge.
Fees for Mortgage and Interest Rates
The interest rate could vary during the entire term of the loan. As long as the mortgage lasts, the interest rate will be applied. Some lenders may combine the interest rate and the associated fees. If this is your case, you should ask the lender about the included interest rate. You must also inquire if the combination will have an effect on future debts.
You can also choose between fixed interest rate and variable interest rate. But before you make a choice, it is important to understand the implications of higher interest rate if it will be applied on your debt at a later date.
You have to understand that variable interest rates can be adjusted monthly or annually. Most lenders allow a maximum of 2 percentage points annually for the adjustment on the mortgage interest rate. Do take note though that the allowance must not exceed 5 percentage points over the lifetime of the mortgage loan.
Other Costs Involved in Reverse Mortgage
Like conventional mortgages, a lender can charge an origination fee for reverse mortgage. This will include expenses for documentations. To illustrate the cost, a home worth $250,000 will have an origination fee of up to $4,500. The fee could increase depending on the value of the home.
You must also pay the closing costs which include title search, insurance, surveys, inspection, appraisals, taxes, and recording fees. The charges could range between $2,000 and $3,000. The closing costs however vary from state to state. Aside from the closing costs, you are also required to pay the servicing fee. The standard servicing fee is usually $35 per month.
Reverse mortgage costs can be included in the balance of the loan. These costs can be paid from the mortgage proceeds. You can easily obtain a good deal from the lender if you make a survey of different reverse mortgage costs.
What You Need to Know about the Cost of Reverse Mortgage
By: Rob Blake
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