If you’re considering a reverse mortgage to fund your retirement, you probably have more than a few questions. For starters, is a Home Equity Conversion Mortgage (HECM) a responsible financial decision?
When managed properly, a HECM reverse mortgage is a reliable way for retired homeowners to supplement their income, fund home improvements, or cover unexpected costs. As with any loan, there are upfront costs to consider before you decide whether to apply for a HECM reverse mortgage.
Here’s a breakdown of the upfront costs and ways you can manage them, so you can get the most out of this potentially life-changing financial solution.
Before you even start your HECM reverse mortgage process, you’ll need to have your house appraised to see how much it’s worth.
Your lender will choose a third-party appraiser to inspect the property and determine its value. If repairs are required, a follow-up visit will be necessary. The first appraisal cost varies across the country, but the national average is $450, with any follow-up visits ranging between $100 and $150. ARAMCO can cover the cost of the appraisal in certain instances.
2. Origination Fee
The origination fee is charged by the lender, and covers their operating costs associated with originating the reverse mortgage for you.
This fee is calculated based on the value of your home, as determined during the appraisal. Under the HECM program, there is an origination fee cap of $6,000, which is the average fee throughout the country. That means you won’t be charged more than that, no matter how much your house has been valued at.
3. Closing Costs
Just like a traditional mortgage, reverse mortgages require certain fees that are rolled together into your closing costs. These include everything from a credit card report fee and title insurance, to pest inspection costs. These costs are vary depending on which individual reports and services apply to your loan.
4. Mortgage Insurance Premium
As of October 2017, all reverse mortgage borrowers are charged a mortgage insurance premium (MIP) at 2% of your home’s appraised value or 2% of the maximum lending limit; whichever is less. It’s an upfront, one-time cost that’s nonrefundable and paid directly to FHA’s insurance fund.
You will also pay an annual MIP, generally at a rate of 0.5% of your outstanding loan balance. The MIP is used to help fund the federally insured reverse mortgage program and in turn, pass along the benefits you receive to help fund your retirement. Without it, there is no reverse mortgage program.
Anyone who wants a reverse mortgage is required to undergo counseling. You will pay a fee, usually $125, to the counseling agency directly — although if you have a low income, you may be eligible for a lower or waived fee.
Don’t be put off if the upfront costs sound overwhelming; all of these costs, with exception of appraisal and counseling, are rolled into the loan. If you’re working with ARAMCO, your only out of pocket expense is for counseling. Our team of certified reverse mortgage professionals (CRMPs) specialize in ensuring you get the biggest bang for your buck. By managing your reverse mortgage responsibly, as part of your retirement strategy, you can bolster your finances and improve your quality of life. The possibilities are endless!
Contact ARAMCO today to speak to our team of certified reverse mortgage professionals (CRMPs), and learn more about your reverse mortgage options.