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Expert Answers on Reverse Mortgage Costs / Fees

Hi! I'm ARLO™, ask me anything about the costs or fees associated with reverse mortgages and I'll fetch your answer immedietly!
 

Answered By Our Experts

Question From Jenny on 8/07/2018

Why is mortgage insurance required on a reverse mortgage?

Expert Answer

Hello Jenny,

The mortgage insurance is what makes the whole program work as well as allowing borrowers the option of having both a lump sum payout and a line of credit that grows over time.  The mortgage insurance protects borrowers, heirs, lenders and those who buy the securities backed by the loans.  Without the mortgage insurance, the product available would probably be just like the private programs that are available today which give borrowers much lower loans as percentages of the home’s value and less options for receipt of their funds (with no growth rate on unused funds).  We did a full article you can find here

Feel free to take your time and read the entire article instead of the short blog version at your leisure. 

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Question From John on 5/26/2018

Hi, is it true that there are some lenders that I can negotiate to a zero amount on fees other than what fha requires?

Expert Answer

The loans with no fees were readily available last year but when HUD changed the program parameters last October, the value of the loans dropped significantly.  This has made it much more difficult to offer loans with no fees or even with lenders paying borrower's costs as they could last year.

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Question From Tyler on 5/17/2018

I just did a hard equity loan for $200k my home value is $1.3 million and is fully paid off. Can I do a reverse mortgage if I just did a recent hard equity loan?

Expert Answer

Hello Tyler,

Under HUD’s current rules, if the existing equity loan is a Home Equity Line Of Credit (HELOC), it can be paid off as long as the amount to do so does not exceed 60% of the Principal Limit (the eligible loan amount under HUD guidelines).  If it is not a HELOC or the $200,000 exceeds the 60% allowed by HUD, it would require 12 month’s seasoning for the HECM program.

However, there are jumbo or private/proprietary programs that do not have the same lien seasoning requirements available that might better suit your needs.  Based on your value, you may be better served with the jumbo program all the way around.  I would encourage you to request your quote here so that we can review your circumstances and give you a no-cost, no-obligation look at what would be available to you under your circumstances!

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Question From Lee P. on 4/10/2018

My 92 year old mother has a reverse mortgage with a balance of approximately $270,000, on a assessed value of $585,000, and a realistic market value of approximately $700,000. She has had the reverse mortgage for about 7 years, and has not plans to use additional equity at the present time. In reviewing some of her statements, I noticed that her monthly mortgage insurance is up to $270/month. Is mortgage insurance required on all reverse mortgage loans? Is there a point where increasing property equity would no longer necessitate mortgage insurance?

Expert Answer

Hello Lee,

The mortgage insurance does not cancel.  In fact, as the loan goes on, the balance increases and the risk to the lender and HUD becomes greater, not less.  With all good fortune, the property will continue to appreciate and the insurance will not be required to pay a claim but if something happens like it did between 2008 and 2012, that value could become considerably less and the balance will continue to rise (not to mention your mom may have more funds available to her that she has not used and doesn’t plan to – but plans change). 

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Question From Bob on 3/25/2018

How is NOT using brokers saving me money?

Expert Answer

Hi Bob,

Every time you have to add a layer of companies or people to a process, somehow they have to be paid.  There are ways to off-set these additional costs but quite often the consumer ends up paying some or all of them in the end.

Borrowers should look at both the fees and the rates which include the margin for an adjustable rate loan on the transaction before making a decision as to who they choose as their originator, especially since the HUD changes last October.  Borrowers often see two proposals side by side and choose one because someone has a lower appraisal fee of $100, but then miss the fact that the rate or margin is higher on that proposal and that will cost them thousands of dollars over the life of the loan.  A higher margin or rate will mean the borrower will receive less money under the program, but it also means that the loan will accrue more interest on the money you do borrow, every single month, regardless of whether rates rise or fall in the future.  I would agree with you that if you compare and if all the terms are identical, then there is no cost saving to using one originator over another but you really do need to compare everything.  Sometimes what you don’t know will hurt you. You can compare our interest rates and fees in real-time by using our free calculator found here

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Question From Linda L. on 2/26/2018

If I am tax exempt due to age, why would taxes be deducted from my reverse mortgage into a set aside fund. Should that set aside tax money be returned to me. I understand insurance but no tax should be due.

Expert Answer

Hello Linda,

If you have a documented exemption whereby you do not have to pay taxes on your property and you are required by the program to have a set-aside, your set aside should only include the hazard insurance.  The software systems still include a space for the amount of the taxes showing on the title report but the lender should indicate that you are exempt, thereby not including this amount in the Life Expectancy Set Aside (LESA) calculation.  You should contact the lender and remind them that you have no tax liability and therefore there is no tax amount to include in the LESA if they have forgotten to exclude this amount.

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Question From Alberto on 2/13/2018

If I have a PMI insurance on my reverse mortgage, in the event that I'll die, would the PMI insurance pay off my Reverse mortgage loan?

Expert Answer

Hello Alberto,

PMI is an acronym for Private Mortgage Insurance and it is placed only on conventional mortgages.  Reverse mortgages are government insurance loans and the mortgage insurance on those loans is the government insurance which is commonly referred to as the Initial Mortgage Insurance Premium for the first year’s premium or IMIP and the renewal premiums are MIP for Mortgage Insurance Premium.  It can get confusing but the insurance on federally insured loans is provided by the Federal Mortgage Insurance Fund, not a private institution.

Now having said all that, both types of insurance do operate on the same principal.  Neither are the same as what is sometimes referred to as Mortgage Cancellation Insurance, which is really just another name for a life insurance policy.  Mortgage cancellation insurance insures the individual so that when the person passes, it pays a claim to the person’s beneficiary.  The Mortgage Insurance that you pay when you take out an FHA loan (whether it is a reverse mortgage or a forward loan), insures a number of people on your behalf against the risk of loss as a result of the loan.  It insures you that you will always have the funds available, even if your lender were to close (HUD would step in and make sure you receive your money).  It insures that the lender will never have a loss on the loan, thus making the loan available to you (why else would lenders agree to make loans on which they don’t receive any payments for years in all kinds of market conditions?).  It also insures the investors who buy the mortgage backed securities and makes the funds available for borrowers to get the loans (lenders rely on selling bonds backed by the loans and if there were no guarantees, again, why would anyone buy the bonds with no repayments for years and then loans would not be available to borrowers?).

So no, the mortgage insurance you pay for when you get your reverse mortgage will not pay off the balance when you pass, but it does make an otherwise unavailable loan available to you.  It makes sure you will always have access to the funds on your mortgage no matter what happens to your lender.  It also insures that you and your heirs can never owe more than the property is worth no matter how much you borrow, how long you live in the property without making a mortgage payment and what future values do (and yes, if there is still equity, it always belongs to you).

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Question From Anne on 2/02/2018

What are the fees involved in getting a reverse mortgage?

Expert Answer

Hi Anne,

Fees vary depending on where you live.  Some states have much higher state costs than others and the title costs can vary by state as well but then again, those costs are higher for all home loans, not just reverse mortgages.  The best thing to do is to go to our free, no obligation calculator at https://reverse.mortgage/calculator and ARLO will give you a real time estimate of costs with the actual fees in your area as well as show you what you could expect to receive with a reverse mortgage.  It doesn’t cost anything, we don’t need any really personal information and we will not pressure you if it is not something you want to explore.

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Question From Claudette on 1/12/2018

I can pay cash for the home I want but need a line of credit for the future. Would it be more expensive for me to do a reverse mortgage now or go ahead and pay cash and wait the required 12 months and then do a Reverse Mortgage? My closing costs for cash are minimal.

Expert Answer

Hi Claudette,

You can do the loan at any time.  At purchase reverse is typically used to buy the home and borrowers take the full draw to pay for a portion of the property and then they use their funds to pay for the rest.  If you want to set up a line of credit, you can do that at any time after you close the purchase, you do not have to wait 12 months. You just need to be sure that you have moved into the property and occupy it as your primary residence.

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Question From Agnes P. on 12/16/2017

I have a question regarding a discrepancy in your online calculators. One All Reverse Mortgage site calculates a $48,050.00 line of credit with a $250,000.00 estimated home value and a $101,000.00 mortgage, with a birthdate of 1947, and another All Reverse Mortgage site calculates a $19,948.00 line of credit under the same scenario. Could you please clarify which calculator would be correct. Both calculators indicate that they have been updated to 12/16/17.

Expert Answer

Hi Agnes,

I can’t address this with just the information that you provide.  The benefits are dependent on the age of the borrowers, current interest rates of the programs and the programs themselves.  For example, if the start rate on one is lower than the other, the amount available will be higher on the one with the lower start rate. 

You said that both were lines of credit but if one is requested as a fixed rate, HUD would limit the amount you can receive in the initial draw and then you would forfeit any amounts you were not allowed to take with the initial draw whereas the line of credit might make you wait 12 months, but the funds are available after that time.

My best guess though is that you may be comparing the full amount available to the amount available in the first draw or 12 months.  HUD limits the amount borrowers can receive in the first 12 months and then makes the remaining funds available after the 12 months have passed.  But as I said, this is just a guess at this point without seeing your information.  We would be more than happy to go over your results with you and explain any differences and each program though if you would like to give us a call or even email us if you would rather.  We only need a very small amount of information and do not need any really personal information and can tell you everything available with just a month and year of birth (not even an actual birth date) and very little else (never a social security number or anything personal for a no obligation, no hassle proposal).

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Question From Patricia H. on 11/06/2017

Is a jumbo reverse mortgage $636,150 go by age (I am 71) or do you receive all $636,150? If I keep this reverse for 5 yrs what are my costs, assuming it is based on $636,150 and the lender is charging 7.75%? My home is worth $2,000,000 but I owe $225,000 which the reverse would pay off.

Expert Answer

Hi Patricia,

You can get an amortization schedule with the costs of the loan broken down by year with your proposal and it will also include the amount you receive and all costs of the loan that will be rolled into the loan balance as well as any that you would have to pay up front out of pocket.  I would invite you to request a proposal (you are not obligated and there is no pressure or hassle) at our website if you would like specific information as it pertains to a loan request.

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Question From Gail on 10/18/2017

How can you send me a proposal without knowing my SSN?

Expert Answer

Hi Gail, 

We do not need a social security number to tell you what your benefits will be under the program. The benefits are not affected by your social security number in any way and I would be suspicious of any company that would NOT give you a detailed proposal unless you first gave them your social security number!  

There are credit implications that lenders have to discuss with borrowers, but just giving a lender your social security number does not allow them to run your credit unless you authorize them to do so. There is no reason to do that unless you know you have issues that will come up and you already know this is the lender with whom you want to work and to do that, you should be able to compare multiple proposals.  

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Question From Peter W. on 10/02/2017

I am 66; my wife is 63. We have no children, thus no one to leave the house or proceeds therefrom. Our current mortgage owing is $190K. The house would probably appraise for $340K. Given that we don't have 51% equity, are we totally out of luck as far as a HECM is concerned? Would it be worth paying the $190K down to $170K to reach 51%? We really aren't looking to obtain any cash from the house at the moment, just get rid of the $1100/month payment.Thanks,Peter

Expert Answer

Hi Peter,

When you ask if it would be worth paying down the existing mortgage to be able to get the reverse mortgage, that is a call only you can make.  The money you bring in would go directly toward paying down your existing indebtedness so it's not like you are paying fees with this amount, but you have to ask yourself if eliminating your existing mortgage payment for the rest of your life is worth giving up this much liquidity at this point to you.  Only you or you with the help of a trusted financial advisor can make this call.  You have to weigh the benefits and negatives of each to determine if such a move would be the best for you at this time.

We don't advocate that the reverse mortgage is the best option for all borrowers at all times.  If you think this home is your "forever home" and getting rid of the monthly payment (you are still responsible for your own taxes and insurance) would make a big impact in your lives, it might be just the right option for you.  On the other hand, if you feel like you would still be living day to day after the loan or might still be looking to move in a short term, this may not be a good option for you.  The loan works great for a lot of people but if it doesn't meet your needs fully, then I certainly would not take some cash out of savings to put a band aid on a situation that will have to be addressed again later, at which time your liquidity would be less and your equity in your home would be lower.  If this gives you all the funds you need to live your life as you choose, then it might be a great option for you.  If you think you will still be faced with a decision to make several years down the road, then you may be better to face that decision now.

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Question From Shaun on 7/01/2017

Hi: 1) If you were to pay the upfront costs, are these costs paid off when I die? 2) Would that then give me more dollars in the tenure monthly payments I receive & how are these costs paid?

Expert Answer

Hi Shaun,

If we pay the costs on your transaction, we pay the costs.  You don't finance them, you don't pay them later, you don't pay them back when you pass.  We rely on anticipated income from our operations to recoup this cost and you never have to repay it.  If we charged you this money later, we could not say that we are paying the cost and would have to disclose this to you in the paperwork.

This is why we cannot offer paid fees on every loan.  HUD charges initial mortgage insurance on every loan.  Appraisal fees, title and closing costs, and recording fees, etc. are real hard costs on every loan that someone has to pay for.  When we show you that we are giving you a lender credit to pay those costs, we are actually paying the costs and you do not ever pay them back or we would have to disclose this on all of your disclosures. 

This would give you more cash available for whatever purpose you chose.

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Question From DONN P. on 2/05/2017

IN ORDER TO GET A LINE OF CREDIT TYPE, REVERSE MORTGAGE, ON THE "ZERO CLOSING COST" PLAN, FOR A HOME THAT HAS RECENTLY BEEN APPRAISED AT $798,000 AND PRESENTLY HAS ONLY A REGULAR 'LINE OF CREDIT' BALANCE OF $45,500, IS THE APPLICANT REQUIRED TO SIGN A 'QUIT CLAIM DEED', AT THE CLOSING, TO THE LENDER, FOR A HOME IN FLORIDA THAT IS PRESENTLY TITLED IN THE NAME OF A REVOCABLE TRUST AND THE OWNER OF THE HOME IS A NON-MARRIED, SINGLE INDIVIDUAL AGE 83 IN GOOD HEALTH ?

Expert Answer

Hi Donn,

First and foremost, remember that the way lenders can offer 0 closing costs to borrowers is by paying those costs on the borrower's behalf.  There are no loans available that don't have any closing costs associated with the loan, it's just a matter of whether or not the lender is able to recoup the costs they pay on your behalf and close the loan with you paying none of the costs.  So it is 0 costs to you, but someone does have to pay those costs.

Knowing that, you need to remember that there are usually minimum loan amounts at which the lender can pay your costs.  If the lender cannot recoup all of the costs and still pay their staff, then a no closing cost loan is not feasible in all cases.  It is also not advisable to take funds that you do not want or need just to try to get a 0 closing cost loan.  You need to balance your desire for no closing costs with the interest rates and determine which scenario works best for you.  This loan is all about you and your needs so make sure the combination of rates and fees you choose are the best for your circumstances/plans.

Finally, no, you never have to sign a Quit Claim Deed to the lender to obtain a reverse mortgage!  The home is yours and belongs to you.  If any lender is asking you to sign a Quit claim Deed to them at closing to do a no cost loan, there is something wrong and you should question that transaction.

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Question From Brian on 12/20/2016

Is there a pay off penalty if we sell the house in the next year or so.

Expert Answer

Hello Brian, There is never a prepayment penalty on a reverse mortgage loan. It is like any other mortgage in the respect that you may pay it off at any time and you will always receive a monthly mortgage statement they will outline your monthly interest charges in current outstanding loan balance.

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Question From John J. on 11/26/2016

Can I qualify for a reverse mortgage without paying an arm and a leg in expenses? I am 62 and working. My wife is 62 and working with a joint 6 figure income. My house is appraised at $275000 with a mortgage balance of $185000. We both have excellent credit. I don't want any $$ at all now or in the future out of the house equity and will sign a waiver stating such. All I want is the monthly mortgage payment done away with. I know we are responsible for taxes, insurance and upkeep etc. If yes, what sort of closing costs would we be talking about (ball park)? Thank you for any info.

Expert Answer

Hi John,

The reverse mortgage benefit amount starts at around 52% for a 62 year old borrower, not counting any costs to obtain the loan.  That would be about $143,000 so even if we can get you into a loan with very little in the way of up-front costs, you are still going to have to come in with over $42,000 just to lower your loan balance.  This is not a fee and goes directly to your balance but it doesn't make the amount any less.

Because the loan requires you to pay no mortgage payments for the rest of your life, the older you are, the higher the benefit you receive.  62 is the minimum age to receive a reverse mortgage so the benefit is the lowest possible at that age.  I'm sorry, unless you are willing to bring in cash to lower the amount you owe, this may not be the loan for you.

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Question From Richard on 5/28/2016

What is the estimated total out of pocket cost to set up a reverse mortgage line of credit? Looks like I would qualify for $385,000. I am 81 and spouse is 78. This is a long term consideration.

Expert Answer

Hi Richard,

To be able to answer this question, we really need a bit more information.  For example, closing costs in some parts of the country are higher than others.  We are also able to tailor programs to your individual needs, but to do so we do need a minimal amount of information such as the items below:

1) Month and year of birth of each borrower (don't even need the exact date, but if you are within 6 months of your next birthday, you will receive the higher benefit).

2) Zip Code where the property is located (don't even need the exact address - we can tell the closing costs for the area with just the zip code).

3) Approximate Value of the Property (If you want us to look up sales in your area, we need the full address but if you know an approximate value, we can work with that.  Many of the costs will be dependent upon the property value.

4) And finally, amount of existing mortgages to be paid off at closing and any the amount of the initial draw you would like to take, if any, from the line of credit (this gives us an idea of where we may or may not be earning other income on the loan and may be able to waive or even pay costs on your behalf.  We can't always do it, but we will when we can!)

When you request a quote on our website, we also can sent you a proposal with different programs, different draw amounts (if you would like to compare amortization schedules) or whatever information you would like to see.  You may want to give the quote request online a try, it is easy, there is no obligation and we do not require a lot of personal information just to answer your questions.

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Question From Paul on 3/30/2016

Is there a limit on how much can a provider pay for things like origination fees, etc.?

Expert Answer

Hi Paul,

If you mean is there a limit on the credits a lender can give you, they cannot pay for the HUD-mandated counseling nor can they give you more credits than the actual costs.  Other than that, the limit is basically what makes sound financial sense based on the value of the loan in the secondary market. 

You have to remember that on a reverse mortgage, the only fee you pay that goes to the lender is the processing fee.  Every other fee is a bona-fide third party fee and if the lender has a cost of $31.25 in there for a credit report, that is what the charge actually was and they cannot pad that fee by even a nickel!  They have to have a receipt in your file for third party charges and they have to match exactly what you paid or the lender can be fined or worse at audit time by state and other regulators.

Any third party fees that the lender agrees to pay on your behalf means a check that they are actually writing to that entity.  It's not just income that they won't make, it is a hard expense for a service for which they paid on your behalf.  So aside from the basic HUD limitation that credits cannot exceed actual costs and lenders are forbidden to pay for the borrowers' counseling, any other credits would depend on the economics of the transaction.  That's why it is best to shop around.  For some companies it makes more economic sense to pay more of these costs and charge less than for others.

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Question From Ronald S on 3/29/2016

Is it common for Reverse Mortgages to include an additional monthly fee for "Mortgage Insurance"? What companies do not charge for Mortgage Insurance?

Expert Answer

Hi Ronald,

All HUD or FHA-Insured reverse mortgages do require the mortgage insurance.  There are very few proprietary or private programs that do not require the insurance, but if you compare the programs, in most instances the borrower is still better off with the HUD insurance.

The benefits to the HUD program are that they offer more programs (line of credit as well as lump sum fixed rates), the interest rates are much lower (the rate plus the mortgage insurance renewal of 1.25% is typically still lower than the proprietary loan rates which are about 7.49%), and the proprietary programs are not as available in all states and areas.  Because one of the things in a reverse mortgage that determines how much money you receive is the interest rate and the rate on the proprietary program is 2.5% or more higher than what is available on the HUD program, the amount as expressed as a percentage of the value of the home is also much less.  A 62 year old borrower on the HECM program can expect a benefit of about 52% of the value of the property, the proprietary program might give that same borrower a benefit of 21% of less of the property value. 

For this reason, the proprietary programs really make more sense for borrowers with property values over $1.5 million.  If you are just looking to avoid the mortgage insurance and your property value is anything below one million dollars, you will pay more in the long run for fewer lending options with this type of loan.

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Question From Charlotte on 2/22/2016

How can u do a no closing cost reverse mortgage when other companies charge upwards of 8 grand?

Expert Answer

Hi Charlotte, 

Such a great question! Please read my full response in a new blog post pusblishd here: How We Deliver a No Closing Cost Reverse Mortgage

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Question From Jade B on 1/06/2016

If a Lender has worked on a reverse mortgage for us for several months - and we change our mind about getting a reverse mortgage - how much do we owe the lender for his time and expertise?

Expert Answer

Hello Jade,

There should be no fee payable to the lender for a cancellation of the loan.  There are often third party charges that you agreed to pay at the onset that the lender collected for in advance and for which you would not be reimbursed for if those services were in fact performed such as appraisals, credit reports, third party inspections or work completion, etc., but there is no fee if you decide the reverse mortgage is not for you.

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Question From Mr. Robson on 12/17/2014

Could you please explain what the Settlement or Closing Fee is. Being a real estate broker, I've seen lots of closing statements, and I've never seen this before.What is a Closing Protection Letter?What’s the Notary Fee for? Usually that’s part of the Attorney’s fee?The Recording fee seems way high. Aren't you jut recording the Deed of Trust and Mortgage?

Expert Answer

Hello Mr. Robson, 

The settlement fee is the fee that is charged by the Settlement/Closing agent that handles the transaction.  This is a 3rd party provider fee and not a fee that All Reverse Mortgage charges.

Lenders require a Closing Protection Letter from Title for every loan they close. It is an agreement that indemnifies the lender against any issues arising from any closing agent errors, or negligence. In some areas, that we do business in this is an additional charge from title, and in other areas it is included in the title premium. This varies from state to state and sometimes from county to county.

This is an estimated charge for the final signing of closing docs as the final loan document set must be notarized. If the final signing is done at a local attorney’s office and they do not charge an additional signing/notary fee, then this fee is waived.

The recording fee is an estimate of the cost to record the documents. For a Reverse Mortgage loan, there are 2 deeds of trust and 2 notes, etc. as the Secretary of HUD takes a 2nd lien position at the same time as the lender.  Due to having 2 deeds to record and the deeds being multiple pages, Reverse Mortgage recording charges are higher than a traditional or Forward mortgage.

A detailed explanation on reverse mortgage fees can be found here: https://reverse.mortgage/fees

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Question From Daniel Healy on 3/10/2014

I was wondering about origination fees, MIP insurance, settlement fee's? I am looking into this for my mother and I received one estimate of closing cost work sheet from another lender and it seemed to be very high. I am a NC real estate broker and the charges seemed much higher than what I'm used to seeing.

Expert Answer

Hi Daniel,

The reverse mortgage loan can be a very expensive loan as all the fees are front-loaded.  However, there are some lenders who do charge less than others and at times there may be other special options available that further reduce those costs.  The Initial Mortgage Insurance Premium (IMIP) will vary depending on how much your mom needs to take at the onset to pay off her current mortgage.  If she takes 60% or less of the total amount available to her in the initial 12 months, the IMIP is limited to just 20% of the amount that it costs if she takes a larger draw in the first 12 months.  I would encourage you to compare with us to see if your mom can take advantage of any of these cost saving avenues.

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Question From IRENE PISANI on 3/02/2014

Your Question...IS THEIR A CHARGE EACH MONTH FOR':"MONTHLY MORTGAGE INSURANCE PREMIUM" THANK YOU EVEN YOU HAVE ALREADY A HOMEOWNERS POLICY? THANK YOU

Expert Answer

Hello Irene,

Yes there is.  The mortgage insurance is the charge that goes to HUD and is not hazard insurance, it is the amount charged by HUD to cover the risk of default and loss under the reverse mortgage program.  The amount is 1.25% of the outstanding balance so as long as your balance remains low, the insurance is very negligible (as is the risk to HUD).  As the balance on the loan grows, so does the risk to HUD and the insurance premium.

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Question From Joe Brennan on 2/13/2013

How would the Mortgage insurance premium work when the owner passes away? Would the house go back to the bank or would the insurance pay off the mortgage?

Expert Answer

The reverse mortgage insurance premium is a premium the borrower pays that protects lenders and investors against risk of default as well as the borrower and the borrower's heirs against any shortfall should the current value not be enough to pay off the existing loan.

The house goes to whomever the borrower leaves it, just like any other loan.  The borrowers heir(s) then have a choice of paying off the reverse mortgage with funds available to them, with a refinance into another mortgage loan, or by selling the home.  The mortgage insurance allows the reverse mortgage to be a non-recourse loan so that the lender will look only to the home for repayment of the debt, regardless of the current balance on the mortgage or the current value of the home.  In other words, even if the borrower has other assets, the lender cannot seek to cover any shortfall with any other funds or assets the borrower may have had and the heirs can never be forced to pay more than the property is worth to pay off the loan (even if they want to keep the property).

The is the role of the HUD mortgage insurance.  It is not like life insurance that is sometimes also referred to as "mortgage cancellation insurance" that pays a death benefit.  Also remember that the lender never "automatically gets the house".  The borrower or the borrower's heirs always own the home and they choose whether they want to keep the home, sell it or let the bank dispose of it by not moving to pay off the mortgage in one of the ways described above and then the bank still has to either have the title given to them by the borrower or the heirs, or obtain the title by default and foreclosure.

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Question From Al on 2/10/2011

We live in Dana Point, California. We have been dealing with Met Life Bank. We have a counseling certificate and our home has been appraised by a licensed California appraiser for $625,000. My wife and I have a Certificate of HECM Counseling. I am shopping around as I think the closing costs of $14,000 is too high for $456,000 with a 4.99% interest rate. Would a HECM saver be better as we would be happy with a smaller payout to lower the closing costs. What can you do for us?

Expert Answer

Rates have been going up lately. Lenders were able to pay more of borrowers' fees just a short time ago due to secondary marketing conditions which have changed dramatically for these loans just in the last 45 days. However, HUD did introduce the HECM Saver loan as a way to lower fees for borrowers who did not need as much money and did not want to pay as much on the up front-mortgage insurance last October and the Saver program does lower the single largest fee on most HECM loans, the Up-Front Mortgage Insurance Premium (UFMIP). The UFMIP alone for a Standard HECM on a property valued at $625,000 is $12,500.The UFMIP for a comparable HECM Saver is just $62.50.

However, there are other things you need to consider. The HECM Saver program has not been around long enough for secondary market investors to get a good enough feel for many of the factors that make them comfortable enough to readily buy the loans. They do not know how long the loans will remain outstanding and there is not yet a large pool of the product to gather any meaningful statistics so therefore their full acceptance with investors is still unknown. What this means to you the borrower is that the rates will be higher on the HECM Saver product and the pricing, or the fees charged by lenders, will be worse to the consumer (at least for the time being). The end result? I am certain you can lower your fees to $8,000 or less if you switch to the Saver program, but as you stated, you will get less money and the rate will be more along the line of 5.25% (this is not quoted as an APR) rather than the 4.99% you are looking at now. You can compare the amortization schedules of both programs and determine which better meets your needs.

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