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Closing Costs
As shown in the chart, the three largest closing costs are the FHA mortgage insurance, the origination fee, and title insurance.
The two costs that are typically paid out of pocket (instead of being financed) are the appraisal and counseling.
FHA
Mortgage Insurance
The upfront
insurance premium is 2% of the
property value up to the HUD
property value limit. The FHA
insurance provides three guarantees:
-
The
homeowner can not "outlive"
the reverse mortgage
-
The
homeowner and heirs will not
be liable if the balance of
the loan exceeds the value
of the home (a reverse
mortgage can not become
"upside-down")
-
The FHA
will take over the loan if
the lender becomes financial
troubled
Origination fee
The origination
fee is what the reverse mortgage
lender earns on the loan. The FHA
uses a formula to determine what the
lender can charge. The formula is:
-
2% of the
first $200,000 of property value
and 1% of the second $200,000 of
property value
-
An absolute
maximum of $6,000
-
A floor of
$2,500
Title
fees
Title guarantees the homeowner's legal ownership of the property and is required for all mortgages whether reverse or conventional. The largest part of title fees is title insurance. Title fees are usually broken down into:
Appraisal
The appraisal establishes the legal value of the home. A reverse mortgage appraisal is special is conducted by an FHA-approved appraiser and follows specific FHA guidelines that require more documentation than a typical appraisal. A typical FHA appraisal costs $475-$550 depending on the state. Remote locations and properties with unique circumstances (such as having extensive damage) tend to cost more.
Other Closing Costs
-
Counseling
-
Wire Fee
-
Flood Cert
-
Credit
Report
As a Reverse Mortgage expert, Barry Kilzer will explain all of the costs. .
Interest
A reverse mortgage accrues interest just like a traditional mortgage except that the homeowner is not making payments each month to reduce the loan balance. As a result the loan balance grows until the homeowner permanently moves out of the property or passes away.
About two-thirds of reverse mortgage holders have adjustable rate reverse mortgages because the rate is usually lower than a fixed rate. Because the homeowners do not make monthly payments, homeowners are not usually as concerned about possible future change in the interest rate.
Interest
Rate and Mortgage Insurance
Over the last few years, the interest rate on a reverse mortgage has fluctuated between 3% and 5%. The real interest rate is one half of a percentage point above the quoted rate because the total rate includes the FHA's ongoing mortgage insurance premium.
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