Why are up front fees for a reverse mortgage so high? Read here to understand why up front reverse mortgage fees are so high!
One of the largest complaints associated with a reverse mortgage is that fees are very high. While they may seem high, there are several reasons why they are so high.
High Risk to Lender
The first reason why up front fees for a reverse mortgage are so high is because the lender is taking on a large amount of risk with a reverse mortgage. Since a reverse mortgage does not need to be paid until the borrower moves out of the home, the lender does not know for sure when the loan will come due. Also, the loan is essentially non-recourse and in the event the home is sold for less than the amount due, the lender will be forced to take a loss on the loan. Because of the high risk, additional fees are needed to offset some of the risk.
Appraisal and Inspection
Another reason why front fees for a reverse mortgage are so high is because the borrower is required to get an appraisal and a home inspection completed. An appraisal is needed to determine the value of the home and an inspection is needed to confirm what level of repairs the home requires. Each of the reports cost a few hundred dollars and come as an upfront fee.
Cap On Fees
While up front fees on a reverse mortgage are usually high when compared to traditional mortgages, they are capped by law. Reverse mortgage lenders are capped on the percentage fee that they can charge and the total fee that they can charge. Overall, a lender may not charge an up front fee of more than $6,000. However, this fee may not include the cost appraisals, inspection, or any legal fees.
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