You probably had a lot of inquiries about the various fees and costs of the conventional mortgage you used to purchase your home, and you probably still do regarding a reverse mortgage:
What is the price of a reverse mortgage, how much are the fees, what determines the interest rate, and how much does a reverse mortgage cost?
It’s crucial to comprehend the costs involved with any type of financial tool, especially one you’re considering for retirement. With this knowledge, you can start comparing different home equity strategies, like a reverse mortgage in this case, to others, like refinancing or selling your house.
Before taking into account home repairs, staging, inspection, moving, title insurance, transfer tax, and other costs and fees, your costs when selling your home, for instance, could include $30,000 in real estate commissions (6% of a $500,000 sale = $30,000).
We’ve broken down the costs of a reverse mortgage into fees, interest rate, insurance costs, and ongoing costs in order to help you better understand them.
Don’t lose sight of the big picture despite how crucial the numbers are. In your current home, which has been updated and improved so you can age in place safely and comfortably, or in a new home and community that your present situation can’t provide, where do you see yourself thriving the most in retirement?
What Are The Reverse Mortgage Fees?
The cost of services necessary for the reverse mortgage process, many of which are there for the borrower’s protection, is largely reflected in fees. Many of these fees are federally capped or strictly regulated.
Your home’s value is determined by an appraisal, which is a crucial factor in determining the amount of your loan.
The average appraisal cost is $450 but varies by region, type of home, and value.
The appraisal is done to make sure the house is structurally sound and meets all local building regulations. If the appraiser notes structural flaws, you must hire a contractor to make the repairs, and the appraiser will need to make a follow-up visit to approve them. Appraisers generally charge $125 for this second check.
The origination fee is used to defray the costs incurred by your lender in originating your reverse mortgage.
Fees differ between lenders and are limited by the FHA. The origination fee is capped at $2,500 for houses worth no more than $125,000. The lender may charge 2% on the first $200,000 of a home’s value and 1% on the portion of the home’s value above $200,000, up to a maximum of $6,000, for properties worth more than $125,000.
The range of services needed to complete your reverse mortgage is covered by closing costs. Here is a brief summary of typical costs provided by NRMLA. These expenses can be rolled into the amount of your reverse mortgage loan, lowering your out-of-pocket costs.
The service charge pays for the anticipated costs of maintaining your account throughout the loan’s term. The FHA caps this fee at $35 a month. AAG typically waives this fee.
All aspects of the reverse mortgage process are covered in counseling, including the benefits of the loan, any potential drawbacks, and eligibility requirements. The fee is about $125, according to NRMLA. One of the few fees that you cannot finance or roll into your loan is this one.
What Are The Interest Rates for Reverse Mortgages?
Your interest rate is given as a proportion of the loan amount you take out. If you choose a fixed-rate reverse mortgage, this rate will remain constant for the duration of your loan; if you choose an adjustable-rate reverse mortgage, this rate will change.
The loan amount will typically be lower with a fixed rate, but the interest rate won’t change.
Because the borrower is sharing some of the lender’s interest rate risk in the event of an environment with rising rates, an adjustable rate typically offers a lower introductory rate. Adjustable rates also come with more reverse mortgage payment choices. (As background, mortgage rates decreased steadily for more than 30 years, from 1981 through the majority of 2014, and they are still in the low single digits today. ).
The cost of funds incurred by your lender to obtain the funds it is lending you, which is based on a significant financial index like the London Interbank Offered Rate or LIBOR or a government organization like the U.S. S. Treasury Department). Your credit history, the cost and location of the home, the interest rate type (fixed or adjustable), any outstanding mortgage liens, the size of the loan, and the reverse mortgage disbursement method you choose are additional significant factors that affect the rate you receive.
Your interest rate is determined daily, and it is monthly added to the loan balance. This amount is indicated in your monthly statement. In contrast to a traditional mortgage, a reverse mortgage allows you to postpone repayment of the loan balance (principal, interest, and the FHA mortgage insurance premium) until you sell the property, vacate the property, or pass away. Nevertheless, you are still responsible for maintaining your house, paying your taxes and homeowners insurance, and abiding by your loan’s conditions.
Try our Reverse Mortgage Calculator by clicking here. It makes an estimate of the total proceeds you might get from a reverse mortgage without requiring any personal information.
Reverse Mortgage Insurance Costs
You must pay the Mortgage Insurance Premiums (MIPs) to the FHA in order for it to protect you, your lender, and ultimately the reverse mortgage program’s integrity. Here are three examples:
2% of the home’s appraised value or the FHA lending limit ($726, 525), whichever is less, is the upfront MIP.
The annual MIP is 0. 5% of your outstanding loan balance. This amount accumulates over time and is paid when the loan is due; it is not taken from the proceeds of your loan.
Please be aware that upfront and ongoing insurance premiums are also a part of traditional FHA-insured loans.
What Are The Ongoing Costs for Reverse Mortgages?
With a conventional mortgage, you make monthly payments to your lender for the principal and interest. With a reverse mortgage, you get your lender’s principal back and don’t pay any interest until the loan is paid off. You continue to pay property taxes, homeowners insurance, maintenance, and other homeowner costs even though you no longer have a mortgage payment, just as you would with any mortgage.
You have the choice to create a Life Expectancy Set-Aside, or LESA, to pay your ongoing real estate taxes and homeowners insurance over the course of your loan if you feel that it would be difficult to cover these costs.
You will be given several documents outlining the costs of a reverse mortgage in order to make the process as transparent as possible.
The Total Annual Loan Cost (TALC) Disclosure is one document that breaks down the cost of the loan over various timeframes.
The Good Faith Estimate (GFE), a different document, provides specific information about the various fees being assessed.
You are given additional disclosures, such as an amortization table, to keep you fully informed about the expenses related to your reverse mortgage.
Talk to Your AAG Professional
You can go over all the figures that go into the price of a reverse mortgage with an AAG professional. We look forward to your call and helping you further investigate whether a reverse mortgage or another home equity solution can help you achieve the retirement you want. If you have any questions about specific reverse mortgage fees, the current interest rate for reverse mortgages, or any other aspect of a reverse mortgage loan, please contact us.
Call us today! (866)-948-0003
With a conventional mortgage, you make monthly payments to your lender for the principal and interest. With a reverse mortgage, you get your lender’s principal back and don’t pay any interest until the loan is paid off. You continue to pay property taxes, homeowners insurance, maintenance, and other homeowner costs even though you no longer have a mortgage payment, just as you would with any mortgage.
Your interest rate is given as a proportion of the loan amount you take out. If you choose a fixed-rate reverse mortgage, this rate will remain constant for the duration of your loan; if you choose an adjustable-rate reverse mortgage, this rate will change.
The cost of services necessary for the reverse mortgage process, many of which are there for the borrower’s protection, is largely reflected in fees. Many of these fees are federally capped or strictly regulated.
FAQ
What is the current interest rate on reverse mortgages?
What is the current reverse mortgage interest rate? Currently, the lowest fixed reverse mortgage interest rate is 6. 930% (8. 420% APR), and variable rates are as low as 6. 730% with a 2. 000 margin.
Is AAG a reputable reverse mortgage company?
Yes, AAG has a solid reputation and receives high marks from customers on Trustpilot. The business also belongs to the National Reverse Mortgage Lenders Association (NRMLA), which enhances its credibility. It’s crucial to remember that AAG and the Consumer Financial Protection Bureau reached a settlement on October 8, 2021.
What does Suze Orman say about reverse mortgages?
There is no one size fits all solution. Although a reverse mortgage won’t be everyone’s best option, it shouldn’t be disregarded as a component of their overall retirement strategy.
What is the average commission on a reverse mortgage?
Loan origination fee: A loan origination fee is frequently charged by lenders to process, underwrite, and close a loan, and a HECM is no different. According to Fiore, you should prepare to pay $2,500 or 2% of the first $200,000 of the appraised value of your house, whichever is higher. Additionally, you’ll pay 1% of the amount over $200,000.