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What Does a Reverse Mortgage Cost? Calculating Reverse Home Mortgage Interest and Fees
There are some costs to getting a reverse home mortgage that you need to be aware of. The costs involve four types of fees, plus interest, at the closing of your new mortgage. The four fees are an origination fee, third-party closing costs, mortgage insurance premiums, and a low monthly service fee of $20-30. Many people choose to finance the fee into their mortgage.
The interest is determined by the Total Annual Loan Cost and can be compared to the APR (annual percentage rate) of common forward mortgage loans. There is one fee that must be paid upfront and cannot be rolled into the mortgage amount. This is the fee for the required HUD counseling service. Interests rates determine the actual interest cost and that can be determined by the rate you have secured.
Reverse home mortgages are currently available in two interest rate options. Each can be beneficial and you should assess your need before selecting which option works best for you. The first option is the fixed-interest rate. With a fixed-interest rate borrowers are locked into the current rate for the life of the loan. With this option the borrower would receive a one-time lump sum payment. This can be a good option for those who need access to a larger amount of funds.
The variable-interest rate is the second option. As interest rate fluctuate the interest rate of this option also changes. Although there is more risk of a larger interest rate, there are also more choices with this type of rate. With a variable-interest rate the greatest amount allowed in equity can be distributed to the borrower. Borrowers can opt for immediate advancement of funds and provide several options for how the funds are distributed.
The variable-rate borrower can choose to have the funds in monthly installments, as a line of credit, in a lump sum payment, or any combination of these options. Borrowers can change their disbursement option at any time and as often as they would like. Which option will work for you is determined by your need and plan for use of the funds once available.
All mortgages have fees and the reverse home mortgage is no different except that you are given the equity you earned, you are allowed to choose how to use it, and the funds are yours for as long as you live in your home.
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