A reverse mortgage is a type of loan that allows you to convert some equity in your home into cash. When you take out a reverse mortgage, you do not have to sell your home or add monthly expenses. However, reverse mortgages are not the right choice for everyone. Since a reverse mortgage eats up some of the equity in your home, it reduces your assets.
In some cases, a reverse mortgage may be a good decision. Before considering a reverse mortgage, it is important to understand the cost associated with it.
Upfront Fees Associated with a Reverse Mortgage
Reverse mortgages come with several costs and fees up front. The fees associated with this type of mortgage include:
- Origination fees: A one-time fee you pay to your lender for the loan. The origination fee will include 2% or $2,500 for the first $200,000 of your home’s value and 1% for the remaining value. This kind of fee is capped at $6,000.
- Appraisal fee: You must have your property appraised to obtain a reverse mortgage. Appraisals typically cost around $500 and will have an additional $125 follow-up fee if you had to make repairs.
- Repair costs: If the appraisal finds structural issues that violate compliance, then you will need to pay for those repairs.
- Mortgage insurance: You must purchase mortgage insurance for your reverse mortgage. Upfront, you will pay 2% of the appraised value up to the FHA lending limit of $726,525.
Additionally, you must pay closing costs. Closing costs vary based on your location and the worth of your home, but they can be extensive. Potential closing costs include:
- Flood certification
- Title insurance
- Pest inspection
- Survey fee
- Document prep fee
- Credit report free
- County recorder’s fee
Recurring Charges on Your Loan
There are monthly recurring charges for your reverse loan as well. The monthly/annual expenses include:
- Mortgage insurance premium
- Property taxes
- Homeowners insurance
- Flood insurance
Reverse mortgages have compounding interest that you pay at the end of your loan. Just like with other loans, you can choose an adjustable-rate or fixed-rate for your interest.
How much will my reverse loan cost?
As you can see, reverse mortgages have a number of costs associated with them. However, the actual price is difficult to determine, as it will depend on your specific property and its value. For more information on reverse mortgages and their costs, our team is happy to help. Contact us today for more information.
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