Let’s face it – researching different mortgages and sifting through different loan rates to find the best deal can be tough. The market isn’t always as transparent and easy to navigate as you think it is. When it comes to reverse mortgages, HECM – Home Equity Conversion Mortgages –pretty much dominate the financial market. Despite their growing popularity, understanding the different terms and conditions can be challenging. Here is some basic information regarding the cost involved in a HECM that will help you determine if this type of loan is suitable for you and your financial needs.
Mortgage Insurance Premiums
The interest on a loan –any loan you so choose– is only a portion of what you eventually have to pay back when you take out a mortgage with an approved lender. When it comes to securing a reverse mortgage quote, there are a number of other closing costs that must be accounted for. One such cost is called a “mortgage insurance premium”. This is something that is not only paid for at closing, but annually throughout the life of the loan, as well. The MIP fee that is charged to you at closing is determined by either the appraised value of your home or the HECM limit – whichever is the lesser of the two. While the mortgage insurance premium is not necessarily a direct, lump-sum, up-front cost, it is important to remember that this is paid for through the life of the loan and must be planned for accordingly.
In addition to loan interest and mortgage insurance premiums, another thing you must consider is the origination fee. When you take a loan out with an approved lender, they charge you for that action. An origination fee, in this case, is the amount you pay directly to the lender for allowing you to take out a loan with their company. While the fees vary depending on the lender, the total amounts are capped by the Federal Housing Authority. Fees may range anywhere from one to a few thousand dollars depending on the total value of your home.
In addition to paying a mortgage insurance premium and an origination fee, there are also service fees that you have to budget for as long as you have your loan. All mortgage loans require service fees – so a HECM is no exception to this standard. Essentially, service fees cover all of the upkeep that is required on behalf of the lender throughout the entire life of the loan. Standard upkeep issues may refer to billing complaints, payment reminders and ensuring that the borrower is up to date with all costs associated with the loan. The service fee varies depending on the lender, but it something that should be planned for prior to taking out a HECM.