The largest fees of a reverse mortgage are the mortgage insurance premium, title insurance and origination fee which are financed into the loan. Two smaller costs must be paid out pocket and those are the counseling and appraisal.

FHA mortgage insurance

FHA mortgage insurance promises

• The homeowner cannot outlive the reverse mortgage
• The homeowner and heirs will not be responsible if the balance of the loan exceeds the value of the home
• The FHA will take over the loan if the lender cannot

Title fees

Title ensures that the homeowner legally owns the home. They title fees are separated into

• Title insurance
• Title settlement
• Title search
• Recording
• Delivery
• Payoff
• Notary
• Doc prep

Origination fee

Origination fee is determined by

• Floor of $2,500
• 2% of the first $200,000 of the property and 1% of the second $200,000 property value
• Maximum of $6,000

Other closing costs

• Flood cert
• Credit report
• Counseling
• Wire fee

Interest

With a reverse mortgage the homeowner does not make payments on a the loan each month to lower the loan balance, thus because of interest, the balance will continue to grow. Since the homeowners do not make consistent payments, they usually are not concerned about the possible increase in interest rates.

Most reverse mortgage applicants will decide to have an adjustable rate because it is usually lower than the fixed rate. In the past ten years the interest rate has stayed consistent 3% to 5%. The real interest rate is one half of a percentage point above the quoted rate because the total rate does include the FHA’s ongoing insurance premium.