Cost for reverse mortgage

At first sight, a reverse mortgage may seem like a completely viable option for older parents who own their own home and are in need of retirement.  This is because they can receive cash for daily living expenses while still living in their own home.  

However, reverse mortgage may not always a good option for everyone.  Reverse mortgages may sometimes have hidden costs or unforeseen consequences that need to be clearly looked into before opting for it.  Other costs for reverse mortgages are also involved. We shall observe the following in depth.

Reverse mortgage costs set by the company offering the mortgage

• Application fees

Application fees are these charged when the applicant requests for the application forms for a reverse mortgage.  These may vary from lender to lender.

• Origination and closing costs

Lenders generally charge origination fees and other closing costs.  The origination fee is a fee that compensates the lender for putting the loan in place and is normally limited to 2% of the value of the home.  If the lender charges an origination fee that is higher than the amount that can be financed by the loan, the difference must be paid at closing.

• Appraisal fees and credit report fees

The appraisal fee covers a property appraisal that determines the worth of your home and a credit report fee covers a credit check to see if you have defaulted on any federally-   insured loans.

• Monthly service fee

Lenders generally charge a monthly service fee during the duration of the loan which they normally set.  Different shops will offer different servicing fees.  However, some states such as California have set the limit for the mortgage fees charged.

• Interest rates

The amount you owe on a reverse mortgage generally grows over time because interest is accrued on the outstanding balance.  The interest rate that one pays on the mortgage is set and controlled by the government.

It is important to note that the private lenders offer higher cost mortgages as compared to mortgages offered through the state and local governments.

Costs caused by owning the home.

• Taxes

Since the borrowers of the loan are still the owners of the home, any taxes that apply to the home must still be paid by them.

• Insurance

The owners of the home are responsible for any insurance on the home since they still own it.  Defaulting on this could cause the loan to become payable in full.

• Home repairs

The reverse mortgagor is responsible for the general repairs of the home.

It is also important to note that there are different types of reverse mortgages such as the Home Equity Conversion Mortgage (HECM) and the Home Keeper programs and that the largest cost difference will be found between the different programs.  So if you decide on HECM, then you need to compare the above rates from different lenders.  You will also need to compare the Total Annual Loan Cost (TALC) rates to establish the true total cost of the reverse mortgage.

It is therefore advisable to shop around so as to compare your options and the different terms offered.  You will certainly be better positioned to get a lesser cost on your reverse mortgage.

References.

1. http://retireplan.about.com/cs/financialplanning/ht/reverse_mort.htm

2. http://www.consumersunion.org/finance/revexewc899.htm