Breaking Down Reverse Mortgage Closing Costs (Updated 2018)
|Financed Charges||POC (Paid outside of closing)||Estimated Amount|
|Mortgage Insurance Premium||$4,300.00 (2% of appraised value)|
|Lender’s title insurance||$1,556.00|
|Title Search Fee||$75.00|
|Notary / Signing||$200.00|
|Closing Protection Letter||$125.00|
|Recording charges mortgage||$444.00|
|City/County tax/stamps deed||(Applicable in FL, GA VA)|
|State tax/stamps deed||(Applicable in FL, GA VA)|
|HECM counseling fee||$125.00|
Actual financed fees example using $215,000 property value
There are a number of closing costs borrowers are required to finance when getting a reverse mortgage. What many people don’t know is that some of the costs vary by lender and the area in which the borrower lives. It is in the borrower’s best interest to shop around and compare prices when considering a reverse mortgage.
Some of the most common variable costs include origination fees and appraisal costs. 2018 interest rates will also have an impact on the amount you can borrow, and the amount of interest you’ll accrue over the course of the loan.
Origination / Processing fees
To originate a reverse mortgage, lenders may charge an origination fee. In general, the origination fee compensates the lender for the processing of a Home Equity Conversion Mortgage (HECM). A lender cannot charge more than $2,500 or 2% of the first $200,000 of the home’s value plus 1% of the amount over $200,000.
Keep in mind that there is a cap of $6,000 for the total origination fee for HECMs. The cap is set by law to keep closing costs reasonable for borrowers.
In some cases, we may offer to waive or reduce the origination fee for certain reverse mortgage products.
As part of the reverse mortgage application process, all homeowners must have an appraisal done on their home. The appraisal is done to help establish the property’s market value, which then is factored in deciding how much the borrower will qualify to receive in a reverse mortgage.
There is a fee charged for the appraisal, which varies from state to state. Right now, appraisal fees are generally higher than they were historically throughout most of the country due to the lack of appraisers. Industry sources have reported a decrease of 20% in the number of active appraisers, which is driving closing costs up, especially in areas where appraisers are particularly scarce.
Some of the reasoning behind the drop in numbers in the appraisal industry is due to a lack of college graduates who want to become appraisers. The job currently requires a four-year college degree, 200 hours of classroom training and an apprenticeship, which usually has relatively low pay.
It’s also worth noting that borrowers do not have the power to choose their own appraiser, which means shopping around isn’t really an option. It all depends on the area the borrower lives in. An appraisal management company manages appraisals and determines who conducts them.
Another aspect that will impact the costs the borrower faces are the current interest rates. Borrowers have two options when it comes to interest rates: fixed rate or variable rate.
Fixed rate reverse mortgages used to be very popular among HECM borrowers due to the certainty factor of a rate that remains unchanged over time. A recent rule change made fixed rate reverse mortgages less desirable for many borrowers due to new restrictions on loan proceeds.
Variable rate reverse mortgages have a rate that is subject to change throughout the life of the loan, which can lead to varying costs. However, it’s important to keep in mind that the loan balance is not due until the loan comes due; usually when the borrower moves from the home or passes away. Variable rates also offer more flexible payment plans such as the most popular line of credit payment option.