Reverse Mortgage Information

You can pay for most of the costs of a HECM by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.

The HECM loan includes several fees, including an origination fee, closing costs, mortgage insurance premium, interest and servicing fees.

Origination Fee

You will pay an origination fee to compensate the lender for processing your HECM loan. A lender can charge a HECM origination fee up to $2,500 if your home is valued at less than $125,000. If your home is valued at more than $125,000 lenders can charge 2% of the first $200,000 of your home's value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.

Closing Costs

Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees.

Mortgage Insurance Premium (MIP)

You will incur a cost for FHA HECM insurance. You can finance the mortgage insurance premium (MIP) as part of your loan. You will be charged an initial MIP at closing, which is either 2% (HECM Standard) or .01% (HECM Saver) of the lesser of the appraised value of your home, the FHA HECM mortgage limit for your area or the sales price. Over the life of the loan, you will also be charged an annual MIP that equals 1.25% of the mortgage balance.

The HECM insurance guarantees that you will receive expected loan advances. The insurance also guarantees that, if you or your heirs sell your home to repay the loan, your total debt can never be greater than the value of your home.

Servicing Fee

Lenders or their agents provide servicing throughout the life of the HECM. Servicing includes sending you account statements, disbursing loan proceeds and making certain that you keep up with loan requirements such as paying taxes and insurance. HECM lenders may charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate and $35 if the interest rate adjusts monthly. At loan origination, HECM lenders set aside the servicing fee and deduct the fee from your available funds. Each month the monthly servicing fee is added to your loan balance.

Interest Rate

HECM borrowers can choose an adjustable interest rate or a fixed rate. If you choose an adjustable interest rate, you may choose to have the interest rate adjust monthly or annually. Lenders may not adjust annually adjusted HECMs by more than 2 percentage points per year and not by more than 5 total percentage points over the life of the loan. FHA does not require interest rate caps on monthly adjusted HECMs.

Pros

Provides a guaranteed source of tax-free income for the rest of your life.

Can choose to receive your money as a lump sum, monthly payment, line of credit, or combination of these ways.

Allows you to remain in your home.

You cannot owe more than the value of your home at the time of repayment, no matter your balance.

You do not have to own your home fully in order to qualify for a reverse mortgage.

If the reverse mortgage balance is less than the value of your home at the point of repayment, your heirs get to keep the difference.

The loan can be repaid without selling your home.

Reverse mortgage income will not impact your Medicare and Social Security eligibility.

Ownership and title of the home remain in your name.

You do not have to worry about making a monthly payment with a reverse mortgage as you would if were to borrow money through a home equity line of credit (HELOC).

Your credit score, savings, and income are not used in the loan calculation. Instead, your age, health, home value, and home equity are taken into consideration.

You can cancel the loan for any reason (right of rescission) during the three day period after your reverse mortgage closes.

Cons

Reverse mortgages can be very expensive. Costly fees, interest rates, mortgage insurance, and closing costs may apply.

Limited to borrowers 62 years old or older.

Reduces the home equity amount you leave to your children or grandchildren.

You still remain responsible for paying property taxes, insurance, and repairs on your home. If you fail to keep up with these costs, you may be required to repay your reverse mortgage early.

Any balance remaining on your first mortgage will be included in the balance of your reverse mortgage.

The loan has to be repaid when you die, sell your home, or no longer use it as your primary residence.

Your heirs will have to pay off the balance plus interest when the loan term ends.

May impact your ability to qualify for Medicaid and Supplemental Social Security benefits.

There are caps on how much you can borrow with most reverse mortgage programs.

A reverse mortgage is more expensive and binding that establishing a home equity line of credit.

You are required to meet with a reverse mortgage counselor before obtaining the loan.

After the three day period passes, the loan is final. Refinancing a reverse mortgage is difficult and costly.

Can I qualify for a HUD reverse mortgage?

To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home.

You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.

How do I receive Reverse Mortgage payments?

You have five options:

Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.

Term - equal monthly payments for a fixed period of months selected.

Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.

Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.

Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

Reverse Mortgage Information

FHA Reverse Mortgage Costs

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Pros

Cons

What types of homes are eligible for a reverse mortgage?

Can I qualify for a HUD reverse mortgage?

How much money can I get from my home from a reverse mortgage?

Can the lender take my home away if I outlive the reverse mortgage loan?

How do I receive Reverse Mortgage payments?

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