Closing Costs of Reverse Mortgages and Refinancing
When it comes to reverse mortgages, a group of closing cost fees is not the first thing that comes to the senior's mind. Good press can certainly get in the way. However the truth about reverse mortgages is that you incur closing costs just as you would when you take out a home loan, standard refinancing, or when you refinance an existing mortgage.
The good thing though about reverse mortgages is that the closing costs (as a group) can be made part of your loan proceeds. You know the deal on reverse mortgages: the loan is not repaid until the house is sold, refinanced or subject to refinancing. There are practically no out-of-pocket expenses or any group of fees besides the ones listed bellow. Here are some of the closing costs associated with reverse mortgages
• Origination Fee
This fee is one of the listed closing costs; it pays for the operating expenses of your lender. This covers the whole breadth and depth of office overhead costs, marketing costs and other expenses. With reverse mortgages backed by the Federal Housing Administration, also known as Home Equity Conversion Mortgage or HECM reverse mortgages, the origination fee equals 2% of the FHA-set loan limit for the county.
The FHA has different loan limits for each county. For the rural areas, the loan limit could be as low as $200,160. It could be as high as $362,790 in metropolitan areas. At 2%, the origination fee typically ranges from $4,003 to $7,256 depending on the county.
• Mortgage Insurance Premium (MIP)
HECM reverse mortgages are required to add a charge for mortgage insurance. This equals 2% of the home's value, or the maximum insurance claim amount, whichever amount is lesser. It comes out that the annual insurance premium equals 0.5 percent of the balance on reverse mortgage loan.
The MIP is the government's guarantee that if your loan provider (the company managing your account) goes out of business, you will still have access to your reverse mortgage funds. It also guarantees that your loan amount will never exceed the value of your home when it is sold or refinanced.
• Appraisal Fee
This typically costs $300 to $400. When your home is subject to a reverse mortgage or its refinancing, a certified appraiser will be assigned to assess the current market value of your home. The appraiser also checks to make sure that your home does not have any defects such as a leaky roof or a termite infestation. Federal regulations require that your home must comply with home safety codes prior to starting a reverse mortgage.
• Service Fee Set-Aside
This fee is deducted from the proceeds of your loan upon closing. This pays your loan service for the time and cost of servicing your account as a reverse mortgage lender. The formula for determining the actual amount of the fee is based on your age and your life expectancy. The Service Fee Set-Aside fee can run up to several thousand dollars.
Other closing costs associated with reverse mortgages may also be associated with refinancing: credit report fee, flood certification fee, closing fee, documentation fee, recording fee, courier fee, title insurance, and survey fee.
The group of fees indicated may also be associated with a mortgage refinance loan.