The Cost of a Reverse Mortgage
Many costs are associated with reverse mortgages, from the expense of getting your home appraised to the interest rate your bank quotes to you. It is important to shop around for the deal that works best for you. Fees charged vary from lender to lender; for example, the hefty origination fee can start around $2500, but can be as high as $6000 or anywhere in between.
The Basics of Interest Rates
Finding the best interest rate is one of the most crucial aspects of selecting a reverse mortgage. Interest is usually charged at a variable rate. You will need to choose either a rate that is adjusted annually or one that is adjusted on a monthly basis. Monthly adjustable interest rates tend to be much lower, but they also can fluctuate constantly with every whim of the economy. The interest rate itself is based on an index base rate which rises and falls with the market; this is added to the margin, which is set by the lender. There are also the monthly or yearly adjustments to the rate. The yearly adjustments are capped at a 2% increase. The overall cap on interest rates for reverse mortgages is the initial fully-indexed rate plus either five percent for annual adjustable, or ten percent for the monthly adjustable.
Types Of Reverse Mortgage
The most popular reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is the only federally-insured reverse mortgage. Until recently, there were also the Fannie Mae Home Keeper and the Jumbo Reverse Mortgage, but due to the recession these are no longer available. However, it remains important to evaluate lenders side-by-side, as there are many that offer HECMs, but the costs associated with each differ from one lender to another.
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