Transaction Costs of a Reverse Mortgage
Everybody seems to know about reverse mortgages these days. Any senior homeowner above the age of 62 is eligible for a reverse mortgage. Reverse mortgages are now being widely promoted across the media.
Seniors whose assets are dwindling, or who face long-term care or other medical costs that are beyond their means, see reverse mortgages as the only solution for their cash problems. John Rother, Director for Policy and Strategy at AARP (American Association of Retired Persons) says that reverse mortgages can provide a promising way to convert home-equity savings to cash.
There are a myriad of rates and terms associated with a reverse mortgages. Here is a brief about transaction costs associated with a reverse mortgage.
We will take one example that the AARP has given in its bulletin. Let’s say a 74-year old senior is living in a $300,000 home. If he takes out a 12-year reverse mortgage, the total non-interest costs can come to nearly $20,000. This includes up-front costs detailed below:
- Mortgage insurance premium for HUD purposes $6,000.
- Origination Fee Charged by Lender $6,000.
- Closing Costs Charged by Agent or Lender $2,500.
There are also accumulated monthly costs over the life of the reverse mortgage, these are servicing fee of $5,000 and a monthly 0.5% MIP added to the interest rate on the loan.
Seniors who choose to “live on the house” need to be aware of these costs that are common with reverse mortgages. For many seniors the costs are very worth it considering the comfort and security they attain through the reverse mortgage payments.
Many times reverse mortgages can be attractive option for senior homeowners even with these costs. Marc Louargand, president of the American Real Estate Society, says that the combination of today’s real estate and aging trends makes reverse mortgages a desirable proposition. This is because the seniors who take reverse mortgages need not move out of their homes and can enjoy monthly payments from the lenders while they live in the home.
Seniors can use a reverse-mortgage calculator that can help them figure out how much of a loan they might be eligible for.
