Costs of a Reverse Mortgage
A reverse mortgage is not just all benefits, though there are many as seen here. A reverse mortgage also has some costs. Our goal is always to be totally upfront with the borrower so they fully understand the product. Below, we will cover the main expenses that come with a reverse mortgage.
Reverse Mortgage Closing Costs
A reverse mortgage, like a forward mortgage, has closing costs involved. Closing costs for a reverse mortgage are pretty expensive, however it is not the most expensive option. Selling your home is much more expensive after you factor in real estate commissions and transfer taxes. This being said, all closing costs are financed into the loan. The only thing the borrower will pay for out of pocket is an appraisal and counseling (which can be found for free).
The biggest expense of a HECM reverse mortgage is the mortgage insurance. HECM reverse mortgages are FHA insured, meaning this insurance is required. What this insurance does is it actually makes sure the loan balance never outgrows the equity a senior has in the home. What does this mean? Basically, the insurance promises that you and your heirs will always have enough equity in the home to pay off the debt.
There are a couple out of pocket expenses as well in a reverse mortgage. First, is the counseling fee. All seniors are required to get 3rd party FHA approved counseling. This can range from free-$125.
The other out of pocket expense is the appraisal fee. This can range anywhere from $400-$1000. Typically, the appraisal costs about $500 for a reverse mortgage.
Other Closing Costs
All other closing costs are financed into the loan, but there are some others to consider. Due to a reverse mortgage’s optional payments, the loan will continue to grow. As stated earlier, it will never cause the senior or their heirs to go into debt, but it can still grow because the senior has the option of not making payments.
Another thing to consider with that is the growing value of the home. Typically, houses grow at a higher rate than the interest rate the borrower is given on the loan. Meaning that in the end these values end up even.