With a reverse mortgage, you agree to repay the money you borrowed, plus interest and fees. Unlike traditional mortgage loans, the amount you owe on a reverse mortgage loan grows over time.
What does reverse mortgage counseling cost?
Borrowers taking out a Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage must receive counseling from a HUD-approved reverse mortgage housing counseling agency before receiving the loan.
Housing counseling costs vary depending on the agency and your income and debt obligations, along with other factors. HUD-approved housing counseling agencies are allowed to charge you a reasonable fee, but they cannot charge you a fee if you can’t afford it. They must explain all charges prior to counseling.
What are the other upfront costs of reverse mortgages?
Borrowers typically must pay one-time upfront costs at the beginning of a reverse mortgage loan. The costs include:
- Origination fees ($6,000 or less, paid to the lender)
- Real estate closing costs (paid to third parties) that can include an appraisal, title search, surveys, inspections, recording fees, mortgage taxes, credit checks, and other fees
- An initial mortgage insurance premium, paid to the Federal Housing Administration
You can pay these costs in cash or by using the money from your loan. Using money from your loan proceeds means you don’t have to bring money to the closing. But it also means you have less available to spend out of the reverse mortgage loan proceeds.
What are the ongoing costs for reverse mortgages?
Ongoing costs are added to your loan balance each month. This means that each month you are charged interest and fees on top of the interest and fees that were added to your previous month’s loan balance. Ongoing costs may include:
- Interest
- Servicing fees paid to your lender to cover such costs as sending account statements, distributing your loan proceeds, and making certain that you keep up with the loan requirements
- Annual mortgage insurance premium, equal to 0.5% of the outstanding mortgage balance
- Property charges such as homeowners insurance and property taxes, and if applicable, flood insurance
Mortgage insurance guarantees that you receive your expected loan advances. This insurance is in addition to your homeowners insurance.
The larger your loan balance and the longer you keep your loan, the more you pay in ongoing costs. The best way to keep your ongoing costs low is to borrow only as much as you need.
Note: This information applies only to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loan.
