Costs for a reverse mortgage are as affordable as other real estate loans but payment occurs at different times. Find out how to maximize benefits.
The total cost for obtaining a reverse mortgage or similar to all other types of home loans. The way costs are paid is not the same. Payment is made over various time periods. Homeowners who are interested in eliminating monthly payments and drawing on a line of credit may find these differences advantageous.
Closing Costs for a Reverse Mortgage
The first costs for a reverse mortgage are closing and funding fees. To qualify, an appraisal is necessary and the creation of a set of closing documents. In addition, taxes, liens and court records are reviewed. The cost for these items is negligible. Lenders may also require title review or title insurance to protect liens. The cost for title work varies widely in various regions or states. All closing costs are due at the time a loan is funded. In most circumstances, closing costs are paid from loan proceeds.
Interest Costs
All reverse mortgages begin accruing interest immediately. The rate of interest charged is similar to national mortgage rates but does not increase if borrowers have poor credit or no credit. When accepting a loan based on real estate values, FICO scores and the information typically reviewed in credit reports is not weighted heavily. Interest accrues monthly on the total outstanding balance owed but is not actually paid. All outstanding balances are rolled into the principal balance at the beginning of the next full month.
Principal Repayment
The repayment of a reverse mortgage is delayed until an indefinite time in the future. The trigger for repayment pertains to occupancy. Owners may live in a home for as long as desired without making payments. If at least one owner does not continuously occupy a home in any given 12-month period, the right of possession may be lost. This requirement is important if the last surviving spouse vacates for an extended hospital stay.
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