Are you a retiree who wants to build your financial safety net? If so, you may want to consider a reverse mortgage!
Reverse mortgages let Americans 62-and-up convert part of their home equity (wealth) into cash, a monthly check, or a line of credit. This could help retirees prepare for unexpected costs like medical bills and home repairs.
Take time to carefully research reverse mortgages
If you’ve spent time researching reverse mortgages and discussed your interest with your family, you’re on the right track. While reverse mortgages aren’t for everyone, growing numbers of retirement planning experts and prestigious universities recommend them to help retirees build financial safety nets.
In addition to reverse mortgage features and requirements, you should also know about costs associated with the loan. These include:
Counseling session fee
To obtain a reverse mortgage, you’re required to undergo counseling with a third-party counselor approved by the U.S. Department of Housing and Urban Development. The counseling session provides detailed information about reverse mortgages, including eligibility requirements and alternative mortgage options.
The counseling session fee is typically around $125 and must be paid directly to your counseling agency.
Professional home appraisals are a requirement for reverse mortgages. The fee can vary depending on the size, age, condition, and location of your home, but usually costs $400 to $600. Your appraisal fee must be paid upfront to the appraisal management company.
Third-party closing costs
You can expect to pay typical mortgage closing fees, including loan recording, credit check, and title insurance. You can ask your mortgage lender for a breakdown of each fee.
Initial mortgage insurance premium
When closing your reverse mortgage, you’ll be charged an initial mortgage premium (MIP). The MIP is either 0.5% or 2.5% of your home’s appraised value, depending on the amount of funds you draw at the close of your reverse mortgage. If you need to draw out more than 60% of the available principal limit, your MIP will be 2.5%. If you draw less than 60% of the principal limit, your MIP will be 0.5%.
Loan origination fee
Lenders usually charge a loan origination fee to process, underwrite and close your reverse mortgage. The origination fee will be calculated as follows: 2% of the first $200,000 and 1% of the remaining amount up to a total origination fee of $6,000. If your home appraises at $280,000 the origination fee would be 2% of $200,000 ($4,000.00) plus 1% of $80,000 ($800.00) for a total origination fee of $4,800.
Ongoing reverse mortgage costs
After you receive a reverse mortgage, you’ll have ongoing costs. These include:
Annual mortgage insurance premiums
Throughout the life of your reverse mortgage, you’ll pay an annual mortgage insurance premium that’s 1.25% of the outstanding mortgage balance.
Loan servicing fees
Lenders can charge monthly servicing fee of up to $35. However, most loan servicers are no longer charging a servicing fee.
Long-term property costs
If you receive a reverse mortgage, you’ll keep the title to your home. This means you’re required to maintain your property. You’ll also have to continue paying your homeowners insurance, HOA premiums and property taxes.
Reverse mortgages can be an excellent option for retirees
If you’re a 62 or older and want to supplement your savings, a reverse mortgage could be a great option. But like any loan, it’s important to think carefully about whether it’s the right option for you. This includes being aware of fees associated with the loan.
If you have further questions on reverse mortgages, contact me today.