A reverse mortgage may be defined in general terms as a mortgage that a home owner takes from a lender and uses his fully paid for home as collateral, which will be collected as soon as the owner of this home dies. This type of mortgage is available to senior members of the society, 62 years and above currently in America. There are a number of costs that you will incur when he decides to take the mortgage.
Servicing fee
A monthly service fee is normally charged by the bank, usually worth about $25, depending on your loan officer. However since you are not required to make any repayment every month, then the banks will calculate one’s servicing fee based on the individual’s life expectancy.
Originating fee
When taking a reverse mortgage, the bank usually charges a fee – originating fee – which is usually about 3% of the principal amount. This acts as a way to compensate the bank for having taken a risk in extending to you the mortgage.
Reverse Mortgage appraisal fee
This fee, the only one that comes out of your pocket, is the amount you will pay out for an independent Federal Housing Agency (FHA), who will analyse your home and compare it to the market value of similar homes in your area. FHA also usually charges a 3% premium since it guarantees so in case there is a loss, the bank is reimbursed by the government.
Other Miscellaneous Charges
Other charges include the title insurance, which is usually taken to protect the bank from any future claims to your title as owner of the property. This amount is usually currently $0.275% of the principle amount. All these fees, apart from the appraisal fee, are usually made to be the total value of the reverse mortgage. It is of great importance for you to make sure you do a cost vis-à-vis benefit analysis before making your decision to take a reverse mortgage.
Related posts: