Orange County Reverse Mortgage Question - How much does a reverse mortgage cost?

I'm thinking about a reverse mortgage on my home here in Orange County, CA.  Can you tell me how much it will cost?

First let me recommend that you do some comparison shopping. I'm not saying the cheapest will always be your best choice, but think twice about going with the most expensive for sure. Don't be afraid to shop and ask for your estimates in writing. Don't let anyone pressure you either. I suggest you have a trusted family member or financial advisor with you when meeting with a reverse mortgage consultant, myself included. More brains on a situation come up with better questions and solutions. (Mastermind concept)

Just about any loan you obtain on your home a reverse mortgage will have costs.  You can break the costs down into two general categories.  First are one-time upfront fees and second are ongoing costs. Also, it’s very important to recognize that fees are different from state to state and even county by county. One time, upfront fees are almost always financed into the loan and are not an “out of pocket expenses”. In the reverse mortgage world though there are two exceptions.

First, is  “HECM Counseling”. All borrowers must complete HECM Counseling prior to applying for a reverse mortgage and there is a fee for this.  You can expect to pay between $90 and $125 for the counseling.  Many agencies will allow you to have the fee paid from the loan proceeds, and they all will waive the fee in the event of a true financial hardship.   

The second upfront fee is usually an “Appraisal Deposit”.  The company I work for asks for an upfront $325 at time of application.  So, the counseling and the appraisal deposit would be two “out of pocket” expenses.

Other closing costs are:
Initial Premium for FHA Mortgage Insurance.  Depending upon which reverse mortgage loan you choose, SAVER or STANDARD the fee will be .01% of the lesser of home value or lending limit for the SAVER or 2% of the lesser of the home value or lending limit.  That’s a huge difference.  If you can get by with the SAVER, I recommend it!

Lender Origination Charge - lenders maximum origination fee is regulated at 2% of the home value up to $200,000 and then 1% of additional value beyond that, capped at a maximum origination fee of $6,000.00  Remember the maximum fee is regulated, but lenders can (and do) charge less!

Some states have additional fees, like Mortgage Taxes - but in Southern California you can bet on the following:

• Escrow (Settlement) Fees
• Title Insurance
• County Recording Fees
• Appraisal Fee (less any credit for prepaid deposit)
• Attorney Trust Review
• Notary Fees.
• 3rd Party Document Preparation

(these are the most common & what I always quote~but there could be others)

On a presentation August 19, 2011,  I quoted to a client with a home valued at $250,000, fees equal to $3,624.56 for the HECM Saver and $9.599.56 for the HECM Standard.

According to my favorite notary, there are many, many lenders still charging the maximum allowable fees including monthly service fees on reverse mortgages, so be smart & shop around.

Ongoing costs relating to a reverse mortgage (and many other mortgages) include interest,  servicing fees, and mortgage insurance.

Interest on a reverse mortgage may be fixed or adjustable and again, may vary slightly from lender to lender.

Monthly service fees are an allowable charge of up to $35 per month on HECM loans although in today’s market, most (but not all) lenders are waiving this charge...so again, compare! Having this charge on your reverse mortgage also lowers the amount of funds you can access.  (One of the reasons that I personally think now is a great time to get your reverse if it is something you are planning to do).

Finally there is the ongoing FHA Mortgage Insurance Premium on any HECM loan.  This ongoing cost runs at 1.25% annual rate, calculated & charged monthly based upon the current loan amount. Think:  loan balance multiplied by .0125 divided by 12.