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Explore About Various Costs Associated With Reverse Mortgage
Explore About Various Costs Associated With Reverse Mortgage

 

Summary: Thinking of taking out a reverse mortgage? It could be a great decision. However, it is better you understand the various costs that are associated with the loan before signing up with a lender.

Reverse mortgage is definitely a great retirement tool for senior homeowners who wish to tap into their home equity to make their lives easier. However, there are many things you need to know about reverse mortgages, before you sign up with any of the lenders through reverse mortgage live transfer leads.

First thing you need to know is that your reverse mortgage becomes payable once you pass away or move out of the house you reside in. In case your heirs wish to keep the home, they will have to make alternate arrangements to pay back the loan.

You will have to continue to pay your property taxes, homeowner’s insurance and maintenance charges regularly for as long as you reside in the house. Any failure to pay these will require you to repay the loan that you have taken against your home.

Finally, there are many costs associated with reverse mortgage that you need to know about. Although most of these costs are financed into the loan, they do add up to the money that you have to repay. Here is a list of such costs, for your perusal:

Origination Fee

This fee covers the operating expenses of the lender that are associated with the origination of the reverse mortgage. It is calculated by adding up 2 percent of the first $200,000 of the value of your home and another 1 percent of the amount over and above this $200,000. The minimum amount that you will have to pay as the origination fee is $2,500. The maximum can be up to $6,000 as capped by HECM.

Mortgage Insurance Premium

MIP or mortgage insurance premium is a fee that you will have to pay to the FHA (Federal Housing Administration) in return for the protection that it provides for you and your lender. In case of any default, the lender gets compensated by the FHA to reduce the risk. Similarly, if the lender fails to meet his obligations at some point of time, the FHA assumes the responsibility of the loan and provides you, uninterrupted access to the remaining reverse mortgage proceeds, if any. Also in case the proceeds from the sale of the house do not cover the reverse mortgage amount, this insurance excuses the borrower from paying back the balance and covers the losses incurred by the lender.

MIP needs to be paid upfront at the time of closing as well as on an annual basis. The upfront MIP comes up to 2 percent of the appraised value of the home or the FHA lending limit, whichever is less. The annual MIP that you pay would be 0.5 percent of the outstanding loan balance. While the upfront MIP is financed into the loan, the annual MIP doesn’t get included in your available loan proceeds. Instead, it gets accrued over time and becomes payable when the loan becomes due.

Appraisal Fee

This is the fee that you pay to the appraiser who assesses your home and assigns it, a current market value. Although this varies from one region to the other, depending on the type and value of home, it averages at about $450. Being a one-time fee, this is paid in cash before the loan is made. Therefore, it doesn’t get financed from the loan proceeds.

In case the appraiser uncovers any structural defects in your home, you will have to hire a contractor, complete the repairs, and arrange for a follow-up appraisal by paying an additional fee of $125. If the estimated repair costs come up to less than 15 percent of the loan amount, it can be paid for from the funds of the reverse mortgage itself. In such a case, a”repair set aside” would be established to pay for the repairs once the reverse mortgage is made. It is the responsibility of the home owner to see that these repairs are completed within time.

Closing Costs

Apart from the above there are many other closing costs that a reverse mortgage borrower will have to pay for. These include:

  • Credit report fee: To verify federal tax liens and other judgements. It amounts generally between $20 and $50.

  • Flood certification fee: To make sure the property is located on a federally designated flood plain. The cost comes to approximately $20.

  • Escrow, settlement or closing fee: Includes title search charges and fees for other required closing services. It can range anywhere between $150 and $800, depending on where your property is located.

  • Document preparation fee: To prepare final closing documents such as mortgage note. The cost ranges between $75 and $150

  • Recording fee: To record mortgage lien with County Recorder’s office. The amount that you may have to pay would be between $50 and $500, depending upon the area where your property is located.

  • Courier fee: To cover the costs of overnight mailing of documents by the lender, loan investor, or Title Company. This won’t be more than $50.

  • Title insurance: To obtain protection against any kind of loss that might arise from any property disputes. The cost of this insurance depends totally on your loan amount.

  • Pest Inspection Fee: To find out if the home is infested with any kind of wood-destroying organisms like termites. This should be under $100.

  • Survey Fees: To determine the official boundaries of your property and make sure there are no encroachments of any adjoining property. This might cost you a maximum of $250.

Apart from the above, there is also a servicing fee that the lender charges on a monthly basis for administering the loan. This will be set aside and deducted from your loan proceeds, at the time of closing.

These cost estimates would however, change over time. Therefore, it is always better to enquire about these costs with the lender who consults you through reverse mortgage leads. This should give you a clearer idea about the current costs.

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