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Expert Answers on Reverse Mortgage Costs / Fees
Important Reverse Mortgage Closing Cost Resources:
- Breaking Down Reverse Mortgage Closing Costs (Updated 2020)
- No Closing Cost Reverse Mortgage Options are BACK!
Expert Answers You Can Trust!
Your reverse mortgage questions are answered by All Reverse Mortgage, Inc. CEO & industry expert Michael G. Branson, with over 40 years of experience in the mortgage banking industry.
Answered By Our Experts
There are two ways you can interpret this question, one is can you pay for the services at closing and the other is can you wait and do these services at closing to be sure you qualify before you incur the costs.
I do not want to assume that you mean either so let me answer both ways. It is not possible to perform the services after the rest of the loan has been completely assembled to make sure that the borrower qualifies if that is the intent of your question.
HUD will not allow lenders to order a single service that would incur a cost for the borrower or the Case Number to begin the loan without the Counseling Certificate Number to verify that borrowers have received counseling from a HUD-approved third party counseling service.
Furthermore, several states have enacted laws that prohibit lenders from processing the loans until waiting periods have elapsed before lenders may begin the loan process (California being one of the longest waiting periods of 7 days) so that absolutely must be performed before a lender can even begin the process.
About the appraisal, lenders could go to closing not knowing if the property even meets minimum requirements, what the value will be, or if there are conditions that would require correction or repair.
As for the appraisal itself, the appraisal is delivered to HUD by the Appraiser or Appraisal Management Company before it can even go to the lender.
HUD protocols specifically prohibit the lender from issuing a loan approval to the borrower until after HUD has received and approved the appraisal as they require a second appraisal if they are not satisfied with the appraisal or property in more than 20% of the appraisals received.
The lender cannot go to closing not knowing if the appraisal will be approved or even what the appraised value would be on any loan, but knowing that there is the possibility that there may be a second appraisal required and that new appraisal may result in a new lower value would prevent any loan from going to closing as well.
So now if you are requesting if these services can be paid at closing, I need to let you know that depends on a few things. The counseling is performed by a third-party counseling service and the lender is not involved with the actual counseling at all.
In fact, lenders are not even permitted to steer borrowers to a specific counselor or company. You would need to set that arrangement up with the counseling agency.
There are times when they receive grants and offer free counseling to the borrower but lenders most often do not know which agencies have the grants or for how long (they only last until they are depleted and then they are gone).
I suggest you call around and just start asking if the agency has grant money available to offer free counseling to borrowers.
You can look up counseling agencies on the HUD website here.
Remember, if you are doing your counseling via phone, it makes no difference where the counselor is located. I also had one borrower tell me that they just did an internet search of “free HECM counseling” and another of “totally free HECM counseling” and they were able to find counselors who offered the service free of charge. You may want to give that a shot as well.
If you get your certificate from a HUD approved counselor, it does not make any difference if you received it for free or paid a fee.
The appraisal must be paid at the time the service is rendered by the appraiser. This means that someone must pay for the appraisal for the report to be completed. Before HUD introduced financial assessment, many lenders were willing to pay this cost for borrowers upfront to be repaid when the loan closed.
There was literally no underwriting assessment of the borrower’s income or credit at that time and if the lender was comfortable with the property and the sales they could see online, they could be fairly assured that the loan would be closed. Since that time, HUD has implemented the additional underwriting parameters and all appraisals are delivered to HUD first for review.
Because this impacts borrowers’ ability to qualify and how much they might receive, lenders are much more hesitant to advance funds for loans that may never close.
You may still find lenders willing to pay half or more of the appraisal in advance, but do not be surprised if this slows your loan down while your lender spends additional time assessing your qualifications before they order the appraisal.
At a time when appraisals are lagging due to excessing volumes in all lending, unless you have extra time for additional delays, it would definitely be best if you have a credit card on which you can put the charge for the appraisal so there is no delay but you may need to make a choice.
If the reverse mortgage you receive is the HUD HECM reverse mortgage, they all require mortgage insurance as they are all government insured loans.
If you own a higher priced property and opt for the jumbo r proprietary programs, they are not government insured and therefore have no mortgage insurance requirements.
The secondary market (the place where lenders sell the securities backed by these mortgages) is not as strong as it was several years ago and so the no cost loans are fewer and farther between.
There has to be a set of circumstances that allows the lender to recoup all of the costs because there is no such thing as a “no costs loan”, it’s just a matter of whether the lender can pay those costs on your behalf and still sell the loan for enough money to recoup the fees they paid for you and make enough to keep the lights on.
There are also considerations such as the counseling that is forbidden for lenders to pay and the appraisal which is usually the obligation of the borrower. I would invite you to visit our free calculator on our website to check your own parameters. This will enable you to see all the options available to your circumstances and with no obligation or hassle, see if that works for you.
Most of the costs are put into the loan, very few are paid out of pocket. It’s hard for me to tell you what you would expect to pay as the costs vary based on the value of the home and the part of the country where the property is located.
Some areas have higher closing costs than others so I suggest you visit my online calculator where with just a zip code and a little bit of information (never a social security number or other private information) you can see with you would expect to pay and what you could expect to receive for your specific property and circumstances. The calculator is real-time, it’s free to use and there is never any obligation or hassle.
There are very few costs you must pay for out of pocket. Most of the costs are in fact, paid through the closing of the loan so not only can they be paid that way, they will be deducted from the proceeds, so you do not have to worry about writing a check for all the costs in advance. You must choose your counselor, and some have free counseling services available while still others will allow you to pay for your counseling at closing (this is becoming less and less frequent since HUD changes though). Since lenders are not allowed to “steer” you to any specific counselor or company, you must research that on your own to find the best available service and cost for your circumstances.
The appraisal is charged by the appraiser at the time the appraisal is performed, and some lenders will offer to pay this cost for you upfront. I caution you though, make sure you get more than one proposal from a lender, especially ones who quote low appraisal fees or those stating they will not charge appraisal costs in advance. Some lenders own their own appraisal management companies. We’ve seen borrowers later find that they can get a much better rate/fee structure by going with another lender only to find that under the HUD rules, they must use the existing appraisal and since it was performed by a company owned by the lender, the appraisal management company will not work with the new lender.
In this manner, the appraisal becomes all but useless to the new lender so that lender must then contact HUD to have the appraisal “thrown out” and then obtain a new appraisal. This all takes time, requires the cost of another appraisal and frustrates the borrower enough in many cases that they agree to accept the worse lending terms just to get their loan closed.
Every reverse mortgage has both an up-front or initial premium and an annual renewal for the mortgage insurance premium. The initial premium is based on the value of the home and the annual renewal is determined by the outstanding balance of the loan. The mortgage insurance is added to the loan balance, you do not have to pay for it out of pocket. You will receive disclosures that show both these amounts when you get a proposal for the loan and with your loan documents, but keep in mind that the lender can only disclose what they think the balance will be.
In other words, if you tell them that you only want $15,000 after the close of the loan, that is the amount upon which the mortgage insurance disclosures would be based. However, if you later take $100,000 after the loan closes, the mortgage insurance will accrue at that outstanding balance instead. We have done an entire article on how Mortgage Insurance accrues, and you can also read about that here if you would like to know the amounts of mortgage insurance that accrues and how HUD determines your premiums.
Typically, the only time you must come into closing with money is if you are short to close based on your benefit versus the amount you owe plus costs. To determine whether this is the case in your circumstances, you would just need to look at the calculator results and they would show you how much your total benefit was, how much your net benefit is after all payoffs, and what options you must receive your funds.
Borrowers typically must pay for their counseling and their appraisals before the loan closed as those services are provided by third party providers and they require payment at the time their service is rendered. Other than that, all costs would be put into the loan and borrowers do not have any additional out of pocket expense unless their loan benefits would not cover their existing loan and costs.
To see if this works for you and to determine your costs, you can review them on our reverse mortgage loan calculator. We don’t require a lot of personal information and never a social security number or a cost and if you don’t think the loan is right for you, no one will hassle you with endless sales calls. Give it a try, you never know unless you try!
I can’t give you an “average” monthly accrual. It depends entirely on the loan balance and the interest rate. If you have a balance of $25,000 on a line of credit at 3%, plus the MIP of .5%, your monthly accrual would only be $83.33 but would rise slightly as the balance grew if you made no payments (as you are not required to do). If you had to pay off an existing loan of $300,000 and you chose the fixed rate of 4.5% plus the .5% MIP, your monthly accrual would be $1,250 and would also increase as the balance increased.
If you really want to know what the amount of your accrual will be, you can get a proposal that will include an amortization schedule that will break down the annual interest, the mortgage insurance premiums and the balance through the life of the loan. You can get this at our free online calculator at https://reverse.mortgage/calculator. This will give you show you what you can receive for your age and property value, what the costs are in your area and how much you would accrue monthly. There is never any obligation and we will not ask for social security numbers or other private information.
The reverse mortgage is unlike other loans with private mortgage insurance on them. The other loans all have balances that go down and therefore, the risk continues to get less and less while the reverse mortgage balance continues to grow for as long as you live in the property increasing the risk to lenders and investors. And regardless if values increase or decrease in the future, you are never required to make a payment on the loan for as long as you live in home.
For this reason, the risk to HUD on this loan grows over time, it does not diminish. Your property value may be $700,000 today, but what will it be tomorrow? None of us knows the answer to that for sure and loans originated prior to 2009 were originated on properties appreciating rapidly and HUD continues to see large losses on that book of business and loans done in the years after up to 10 years later.
HUD continues to insure reverse mortgage loans for the life of the loan – not just the first 2 years. That is what makes them attractive to investors when they buy the GNMA securities backed by the mortgages. Without reverse mortgage insurance, the loans would not be available to borrowers as the greater risk to the investors would make the money unavailable. If no one is willing to buy the bonds, then the loan is not available to the borrowers in the first place. The only way to eliminate the mortgage insurance would be to pay off the loan.
There is no fee or prepayment penalty for paying the loan off early. You can sell the home and move at any time and the only thing you would need to pay would be the balance and any interest that accrues. If you desire, you can purchase the next home with a reverse mortgage as well so that you do not have to pay for the entire purchase price to be payment-free or incur a monthly payment if you liked not having a mortgage payment.
The loan is intended to be the last loan you will ever need and it is a shame you feel the need to move so soon after closing your loan and incurring the costs to set the loan up in the first place, but that’s entirely your choice and there is no additional cost to close it now other than standard nominal fees for recording documents, etc.
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.
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.
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!
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).
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.
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.
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).
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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
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.
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.
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.
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.