Typical Costs

Typical Closing Fees

Many of the costs involved in a home purchase loan or refinancing of an existing mortgage apply to reverse mortgages too. You should expect to pay a origination fee, up-front mortgage insurance premium (for HECM or an FHA Home Equity Conversion Mortgage), an appraisal fee, and other standard closing costs. In most cases, these fees and costs are capped and may be financed as part of the reverse mortgage. Below is a more in-depth explanation of each type of fee.

Origination Fee
Lender's operating expenses such as office overhead and marketing are covered by the origination fee.

Under the HECM program, which accounts for 90 percent of all reverse mortgages made in the U.S. , the origination fee is equal to the greater of $2,000 or 2 percent of the maximum claim amount (i.e., county FHA loan limit). Currently, the FHA loan limit varies from a low of $172,632 (for rural areas) to a high of $312,896 (for high-cost metropolitan areas). The 2 percent origination fee generally ranges between $3,453 (2 percent of $172,632) and $6,258 (2 percent of $312,896).

Borrowers who keep their home are charged an origination fee that may not exceed 2 percent of the value of the home. Regardless of the amount, the entire amount of the origination fee may be financed as part of the mortgage.

Mortgage Insurance Premium

Borrowers are charged a mortgage insurance premium (MIP) under the HECM program which is equal to 2% of the maximum claim amount of home value, whichever is less. There is also an annual premium equal to 0.5% of the loan balance.

The MIP guarantees that if the company managing your account - commonly called the loan "servicer" - goes out of business, the government will step in and make sure you have continued access to your loan funds. Furthermore, the MIP guarantees that you will never owe more than the value of your home when the HECM must be repaid. The MIP guarantees if the loan servicer, or company managing your account goes out of business, the government will step in to ensure you can access your loan funds. It will also guarantee you can never owe more than the value of your home when the HECM is repaid.

Appraisal Fee
Appraisers usually charge between $300 and $400 for an appraisal, or assigning a current market value to your home.

Federal regulations mandate that your home be structurally sound, and comply with home safety codes to receive a reverse mortgage. An appraiser makes sure there are no structural defects or termite damage in addition to assigning a value to your home.

The homeowner is responsible for hiring a contractor to complete any repairs necessary, based on the appraisal. Once repairs are complete, the same appraiser will return (for a fee of $50-$75) to verify the repairs have been completed. Repair costs may be financed in the loan and completed after the reverse mortgage is done.

Closing Costs

Other closing costs that are commonly charged to a reverse mortgage borrower include:

• Credit report fee, generally under $20. This verifies any federal tax liens, or other judgments, handed down against the borrower.
• Flood certification fee, generally under $20. Determines whether the property is located on a federally designated flood plane.
• Escrow, Settlement and Closing fees, usually $150-$450. This generally includes a title search and other required closing services.
• Document preparation fee, usually $75-$150. This fee is charged to prepare the final closing documents, including the mortgage note and other recordable items.
• Recording fee, $50-$100. This fee charged to record the mortgage lien with the County Recorder 's Office.
• Courier fee, generally under $50. This covers the cost of any overnight mailing of documents between the lender and the title company or loan investor.
• Title insurance. This insurance protects the lender (lender's policy) or the buyer (owner's policy) against any loss arising from disputes over ownership of a property. Cost varies by the size of the loan, but in general, the larger the loan amount, the higher the cost of the title insurance.
• Pest Inspection, generally under $100. This determines whether the home is infested with any wood-destroying organisms, such as termites. The cost may depend of the size of the home or property.
• Survey, generally under $250. This determines the official boundaries of the property. It's usually ordered to make sure that any adjoining property has not inadvertently encroached on the reverse mortgage borrower's property.

Servicing Set-Aside
This is an amount of money deducted from the available loan limit at closing to cover the projected costs of servicing your account.

Under federal regulations, the loan servicer (which may or may not be the same company as the originating lender) is allowed to charge a monthly fee that ranges between $30-$35. This amount is largely determined by the borrower's age and life expectancy. Generally, the set-aside can amount to several thousand dollars. The servicing set aside is just a calculation and not a charge. The only amount added to your loan balance is the monthly servicing fee, which ranges from $30-$35.