Search thousands of topics on CostHelper

BROWSE ALL TOPICS >> babies & children  cars  consumer electronics health & personal care home & garden personal finance  pets  schools small business sports weddings
CostHelper > Personal Finance  > Real Estate > Reverse Mortgage

Reverse Mortgage Cost


How Much Does a Reverse Mortgage Cost?

 
 average costInsurance Premium: 2% of Home's Value and Loan Amount  

A reverse mortgage is a loan taken out on the equity of a home that does not need to be paid back until the owner moves out, dies or defaults on the loan.

Typical costs:

  • The two major costs associated with the reverse mortgage are the mortgage insurance premium and the origination fee; each equal to a charge of 2% on the home's value and the amount of the loan, respectively. Both can be folded into the loan amount, and would not become due until the end of the loan.
  • Homeowners can borrow as much as the appraised value of the home or the maximum principal amount that can be insured by the Federal Housing Authority. This varies by geographic area and changes frequently, according to the US Department of Housing and Urban Development; the current maximum is $625,500.
  • The mortgage insurance premium, which protects the lender in case the homeowner defaults on the loan, is both an up-front cost and an ongoing cost. At closing, when the reverse mortgage is taken out, the insurance premium is charged as a percent of either the appraised value of the home, $625,500, or the home's sale price, whichever is lowest.
  • For example, the Standard reverse mortgage insurance premium is 2%, or $4,000 on a $200,000 home. The premium's maximum rate -- 2% of $625,500 -- is $12,510. The Saver[1] reverse mortgage insurance premium, made available for smaller loans in 2010, is .01%, or $200 on a $200,000 home.
  • In addition to the up-front mortgage insurance premium, an annual mortgage insurance premium of 1.25% of its balance will be charged over the life of the loan. This would amount to $2,500 annually on a $200,000 home. The origination fee, which covers the lender's operating costs, amounts to 2% of the loan, up to $6,000.
  • The interest rate on reverse mortgages is typically .25%-2% higher than the prime mortgage rate, which as of April 2012 is 3.5%-5.25%.
Related articles: Property Appraisal, Refinancing a Mortgage, Real Estate Contract Review, Home Equity Loan

What should be included:
  • Reverse mortgage holders are borrowing back the equity on their home. For example, if a home is valued at $200,000 but the owner only owes $50,000, they have up to $150,000 in equity from which to borrow.
  • Unlike a home equity line of credit, borrowers don't pay the borrowed amount back in monthly payments of principal and interest. Instead, the money becomes due when the home is sold, which typically happens when the owner moves out of the home or dies. Typically, money generated through the home's sale is used to pay the reverse mortgage lender.
  • There is no credit check or income requirement to take out a reverse mortgage. Applicants must be at least 62 years old, live in the home and have a mortgage balance that is less than the loan amount.
  • The loan amount can be paid out as a lump sum to the borrower, as a line of credit to borrow from as desired, in set monthly payments from the lender to the borrower, or a combination of these options.
  • For more on how reverse mortgages work, visit the Housing and Urban Development's Q&A page[2] .
Additional costs:
  • Additional costs include a home appraisal, title insurance, recording fees and other typical closing costs, which combined can be $1,020-$10,000 or more.
Shopping for a reverse mortgage:
  • Due to the economic recession of 2008, brought on by the housing market crash, the federal government changed regulations regarding reverse mortgages. The AARP provides a fact sheet[3] on these changes and how they affect current and potential reverse mortgage holders.
  • Ibis offers a reverse mortgage calculator[4] to estimate fees.
  • Reverse mortgages have been strongly criticized[5] by many financial experts for being overly risky and expensive.
  • The Federal Housing Authority, which administers the Home Equity Conversion Mortgage product where the vast majority of reverse mortgages originate, advises meeting with a financial planner[6] to decide whether a reverse mortgage is the best option.
post Post    
CostHelper News


7 Lesser-Known Discounts for the 50+ Crowd
As they age, members of the Baby Boomer generation don't like to admit that they're senior citizens, but they love getting discounts. It's kind of a quandary, because some of the best deals available are reduced prices for older folks. || Posted October 21 2013


7 Ways to Stretch Your Reduced Food Budget
End of the year budgets are tight for everyone, especially in this economy.It's especially hard for the millions of Americans who depend on government programs like food stamps to help make ends meet. || Posted November 11 2013

‣ All CostHelper Blog Posts


What People Are Paying - Recent Comments


 

Comment On Your Experience With a Reverse Mortgage
 
Subject:  *
Amount Spent:  *
Amount of Loan: Premium Amount: 
Comments: 
Purchased:  Year: 
City:  * State:  *
 
Information about you:
Email:  * Email addresses are not displayed.
Name:  This is the name we'll display with your post.
me on this computer
*=required field.
 



External Resources:
  1.  www.aarp.org/money/credit-loans-debt/info-10-2010/new-reverse-mortgage-for-less.2....
  2.  portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten
  3.  assets.aarp.org/rgcenter/ppi/ltc/fs211-economic.pdf
  4.  rmc.ibisreverse.com/default_nrmla.aspx
  5.  www.smartmoney.com/spend/real-estate/the-pitfalls-of-reverse-mortgages/
  6.  www.napfa.org/
More Personal Finance Topics
Check Out All Costs for Personal Finance How Much Do Funeral Flowers Cost? How Much Do Tax Returns Cost? How Much Does Closing a Home Cost?

Search Thousands of Topics on CostHelper.com

 
Today's Featured Cost Articles

About CostHelper
CostHelper is based in Silicon Valley and provides consumers with unbiased price information about thousands of goods and services. Our writers are experienced journalists who adhere to our strict editorial ethics policy.

CostHelper Community
Didn't hurt the pocketbook
Paid: 43.00
I called my dentist because my tooth had been hurting for a week and a half. I couldn't eat or sleep. It was horrible. They got me in the next day. The dental surgeon and staff took x-rays, verified that it indeed needed to come out... [more]
-Anxious in Augusta
Tooth Extraction Cost
Current cost of skirting job 2022
Paid: 2356.00
Purchased material @ mobile home supply store Front/back top trim & ground track 17 each [email protected]$9= $459. 48 [email protected]$17= $816. [email protected]$40 [email protected] $20 tax $121. Total material $1456. 3 guys total $75 hour labor at 12 hours $900 labor... [more]
-Fayard siding
Mobile Home Skirting Cost
Alatel joy tab2
Paid: 108.00
Cracked screen... [more]
-Shawn P Speers
Tablet Repair Cost
Replace 2baths, laundry, and kitchen to the street
Paid: 20000.00
Numerous breaks in 90 year old cast iron and also in the clay pipe. replaced with 4" schedule 40 ABS to the curb and then liner in the clay pipe to the city sewer... [more]
-Steve in 2022
Sewer Line Replacement Cost
Full mouth -Is this estimate too much?
Paid: 16945.00
Extract buttom front teeth, replace with single implant for both teeth. Root canals and crowns needed for 3 molars, fillings needed on 11 teeth. Deep cleaning with 4 spots of Arestin and fluoride treatment. All under IV sedation... [more]
-Shanmarspag
Dental Work Cost
Lockout at front door
Paid: 175.00
I was quoted $29 for a service call. The techniciandidn't give me a price but went ahead with the repair. It took about 10 minutes. Then he told me the charge was because the owner of the business gets most of the money I paid... [more]
-Carla Axelrod
Locksmith Cost