Reverse Mortgage -HECM Costs
You can pay for most of the costs of a Reverse Mortgage (HECM) by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.
FHA INSURED HECM LOAN CHARGES
Mortgage Insurance Premimum
You will incur a cost for FHA mortgage insurance. The mortgage insurance guarantees that you will
receive expected loan advances. You can finance the mortgage insurance premium (MIP) as part of your
loan. The annual MIP equals 0.5% of the outstanding balance.
Third Party Costs
Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections,
recording fees, mortgage taxes, credit checks and other fees.
Origination Fee
You will pay an origination fee to compensate the lender for processing your HECM loan. A lender can charge the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.
Servicing Fee
Lenders or their agents provide servicing throughout the life of the HECM. Servicing includes sending
you account statements, disbursing loan proceeds and making certain that you keep up with loan
requirements such as paying real estate taxes and hazard insurance premium. Lenders may charge a
monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate or has a
fixed interest rate. The lender may charge a monthly servicing fee of no more than $35 if the interest
rate adjusts monthly.
Initial Mortgage Premium
You will be charged an initial mortgage insurance premium (MIP) at closing. The initial MIP will be 2% of the home’s appraised value or FHA lending limit ($726,525), whichever number is less.
Lender Set-Aside
A Life Expectancy Set Aside, or LESA, is a government-implemented guideline that requires some reverse mortgage borrowers to put aside a portion of their reverse mortgage proceeds to pay for their property taxes and homeowners insurance for a certain amount of time.