If you are approaching your golden years and seeking a bit of financial flexibility, you might want to look at a reverse mortgage. This unique financial product is only open to individuals over 62 years of age. It allows you to convert some of your home’s equity into cash which you can use as needed in your retirement.
Of course, a reverse mortgage isn’t without its costs. Let’s explore the fees that you will encounter when you take out a reverse mortgage loan.
Upfront And Pre-Closing Costs
The first step in getting a reverse mortgage (also known as a Home Equity Conversion Mortgage or “HECM”) is to visit with a third-party HECM advisor. These advisors are approved by the Department of Housing and Urban Development. It is their job to ensure that you know the ins and outs of getting a reverse mortgage. Expect to pay from $100 to $200 for this session.
Another cost you’ll incur is a home appraisal. Every reverse mortgage lender will require that your home’s value assessed by an independent appraiser. This cost varies from $200 to $500 and up depending on the size of your home, its current condition, its age and a variety of other factors.
Like a traditional mortgage, your lender is likely to assess an origination fee. This fee covers the cost of processing and closing your reverse mortgage loan. Most lenders charge a small percentage of the total amount of your loan. For example, if you are borrowing $100,000 you may pay around one or two percent, which comes to $1,000 or $2,000. Regardless of the total amount, the origination fee is capped at $6,000 total.
Post-Closing And Ongoing Costs
After your reverse mortgage has closed, you may find that there are some additional ongoing costs that you will need to be aware of. For example, some lenders charge a loan servicing fee. This fee is usually paid each month and tends to vary depending on the interest rate of your reverse mortgage.
Finally, you’ll be responsible for paying the ongoing cost of mortgage insurance. This is assessed as an annual premium and equals around 1.25 percent of the balance owing. As this can end up being a significant cost, it is one you’ll want to budget for.
As with any loan, a reverse mortgage has its costs. However, the financial flexibility you gain with a reverse mortgage is certainly worth it. When you’re ready to explore your reverse mortgage options, contact our friendly team of mortgage professionals. We’re happy to help.
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About the Author:
Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.