Reverse Mortgage Blog

Deciphering Reverse Mortgage Cost: Closing Costs

Thu, 19 Oct 2006 12:24:38 -0800

Other closing costs that are commonly charged to a reverse mortgage borrower, include: -Credit report fee. Verifies any federal tax liens, or other judgments, handed down against the borrower. Cost: Generally under $20 - Flood certification fee. Determines whether the property is located on a federally designated flood plane. Cost: Generally under $20 - Escrow, Settlement or Closing fee. Generally includes a title search and various other required closing services. Cost: $150-$450 - Document preparation fee. Fee charged to prepare the final closing documents, including the mortgage note and other recordable items. Cost: $75-$150 - Recording fee. Fee charged to record the mortgage lien with the County Recorder's Office. Cost: $50-$100 - Courier fee. Covers the cost of any overnight mailing of documents between the lender and the title company or loan investor. Cost: Generally under $50 - Title insurance. Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against any loss arising from disputes over ownership of a property. Varies by size of the loan, though in general, the larger the loan amount, the higher the cost of the title insurance. - Pest Inspection. Determines whether the home is infested with any wood-destroying organisms, such as termites. Cost: Generally under $100 - Survey. Determines the official boundaries of the property. It's typically ordered to make sure that any adjoining property has not inadvertently encroached on the reverse mortgage borrower's property. Cost: Generally under $250

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Drawbacks Of Reverse Mortgage

Thu, 19 Oct 2006 12:24:38 -0800

A reverse mortgage borrower may encounter many financial hazards in taking out a reverse mortgage. First, reverse mortgages are very expensive while promising an uncertain amount of benefits. For example, a typical reverse mortgage may provide to the consumer a $300 per month payment with a monthly compounded interest rate of 1%. Over the course of ten years, the borrower will receive $36,000, but by that time she will owe almost $70,000-almost twice as much as she has received. In addition, reverse mortgages have complex contract terms that are confusing and can greatly impact the overall cost of a reverse mortgage to the borrower. This report examines the effect of some of these terms on some California reverse mortgage borrowers and looks at the danger to borrowers when lenders or third parties involved in arranging reverse mortgages do not fully disclose a loan's terms and fees. One example involves a lawsuit filed by the San Mateo County Public Guardian which, on behalf of Berta Grey, an 83-year old woman, alleged that Transamerica Corporation unfairly and unconscionably charged her what was in effect a shared appreciation fee. This fee gave Transamerica an automatic 50% interest in the difference between the base value of the home when the loan was signed and the appreciated value of the home when the loan terminated, even though the fee bore no relation to the amount she actually borrowed. Additionally, the cost of Berta Grey's reverse mortgage soared when she was required to purchase an annuity in conjunction with her reverse mortgage. An annuity is an insurance product financed out of the home's equity to provide monthly payments to the borrower immediately or after a certain number of years. The San Mateo County Public Guardian alleged that Transamerica charged Berta Gray the cost of the annuity immediately and that interest began compounding on that fee even though she was not due to receive any payment on the annuity until six years after the loan began, at age 89. Under this arrangement, if Ms. Gray died before the six-year period ended, her estate would see no benefit from the annuity purchase, although she had paid in full for it. Numerous other front-end and back-end fees can quickly drive up the cost of a reverse mortgage and are discussed in more detail in this report. These fees include origination fees, points, mortgage insurance premiums, closing costs, servicing fees, shared equity or "maturity" fees, and shared appreciation fees. The case of the San Mateo County Public Guardian v. Commonwealth Life Insurance illustrates how some of these fees generated allegations by a class of 1,505 borrowers that they were charged tens of thousands of dollars in artificially inflated loan fees. This suit was settled in 1999. Reverse mortgage counseling, which is the main consumer safeguard against financial fraud and abuse against seniors, is required for some but not all loans. This means that the current system of reverse mortgage counseling is not enough to protect potential borrowers. Some of the major flaws cited in this report include situations where reverse mortgage counselors are not neutral parties because they are affiliated with the lender. Unfortunately, this practice is encouraged by the fact that Fannie Mae will purchase reverse mortgage loans from loan originators who themselves provide "counseling" to prospective reverse mortgage borrowers.

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9 Steps To Get Reverse Mortgage

Thu, 19 Oct 2006 12:18:18 -0800

ReverseMortgage.org's cartoon is a good start to decipher the mysterious world of getting a reverse mortgage.

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Deciphering Reverse Mortgage Cost: Origination Fee

Thu, 19 Oct 2006 12:18:18 -0800

The origination fee covers a lender's operating expenses—including office overhead, marketing costs, etc.—for making the reverse mortgage. Under the HECM program, which accounts for 90 percent of all reverse mortgages made in the U.S., the origination fee is equal to the greater of $2,000 or 2 percent of the maximum claim amount (i.e., county FHA loan limit). Currently, the FHA loan limit varies from a low of $200,160 (for rural areas) to a high of $362,790 (for high-cost metropolitan areas). Therefore, the 2 percent origination fee generally ranges between $4,003 (2 percent of $200,160) and $7,256 (2 percent of $362,790). Home Keeper borrowers are charged an origination fee that may not exceed 2 percent of the value of the home. With either product, the entire amount of the origination fee may be financed as part of the mortgage.

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Deciphering Reverse Mortgage Cost: Appraisal Fee

Thu, 19 Oct 2006 12:18:18 -0800

An appraiser is responsible for assigning a current market value to your home. Appraisal fees generally range between $300-$400. In addition to placing a value on the home, an appraiser must also make sure there are no major structural defects, such as a bad foundation, leaky roof, or termite damage. Federal regulations mandate that your home be structurally sound, and comply with all home safety codes, in order for the reverse mortgage to be made. If the appraiser uncovers property defects, you must hire a contractor to complete the repairs. Once the repairs are completed, the same appraiser is paid for a second visit to make sure the repairs have been completed. The cost of the repairs may be financed in the loan and completed after the reverse mortgage is made. Appraisers generally charge $50-$75 dollars for the follow-up examination.

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Deciphering Reverse Mortgage Cost: Mortgage Insurance Premium

Thu, 19 Oct 2006 12:18:09 -0800

Under the HECM program, borrowers are charged a mortgage insurance premium (MIP), equal to 2 percent of the maximum claim amount, or home value, whichever is less, plus an annual premium thereafter equal to 0.5 percent of the loan balance. The MIP guarantees that if the company managing your account – commonly called the loan “servicer” – goes out of business, the government will step in and make sure you have continued access to your loan funds. Furthermore, the MIP guarantees that you will never owe more than the value of your home when the HECM must be repaid.

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Reverse Mortgage FAQ: Payment Options In HUD Reverse Mortgage

Thu, 19 Oct 2006 11:58:13 -0800

You have five options: - Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence. - Term - equal monthly payments for a fixed period of months selected. - Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted. - Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home. - Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

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Reverse Mortgage FAQ: Difference Between A Reverse Mortgage And A Home Equity Loan

Thu, 19 Oct 2006 11:58:07 -0800

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

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How Can You Qualify For A HUD Reverse Mortgage?

Thu, 19 Oct 2006 11:58:04 -0800

To be eligible for a HUD reverse mortgage, HUD's Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.

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Typical Costs and Interest Rates of Reverse Mortgage

Mon, 09 Oct 2006 12:24:38 -0800

The cost of getting a reverse mortgage from a private sector lender tends to exceed the costs of other types of mortgage or equity conversion loans. Exact costs however are dependant on the particular reverse mortgage program that the borrower aquires. For the most common type of United States reverse mortgage, the HECM (Home Equity Conversion Mortgage), there is an insurance premium of 2 percent of the loan and a 2 percent origination fee in addition to normal closing costs, which are typically some thousands of dollars, but vary depending on the third-party costs (appraisal fees, title searches, etc.) that must be undertaken. Thus a $200,000 loan would have $8,000 in costs beyond the normal closing costs added onto the loan at the outset. Other programs tend to skip the insurance premium, but still require the origination fees and closing costs, though some programs will waive the initial costs if the borrower is willing to borrow the maximum or close to the maximum amount that they are eligable to receive. In addition, there is a monthly service charge of between $25 and $35 that is usually added to the total amount of the loan. In all of these cases, the costs of a reverse mortgage can typically be financed through the loan itself, with the costs and fees being rolled directly into the principal balance of the loan, rather than paid by the borrower in cash. While this does permit borrowers with little or no available cash to get a reverse mortgage, it does mean that the initial loan principal will be increased, and consequently, that the fees will begin accruing interest. Interest rates on reverse mortgages are determined on a program-by-program basis, but are typically similar to interest rates offered by Adjustible Rate Mortgages (ARMs), or at time of this writing, approximately 7-8%. All major reverse mortgage programs have adjustable interest rates that are adjusted on an annual, semi-annual, or monthly basis. Due to the fact that reverse mortgages have no fixed duration, there are no reverse mortgages with fixed interest rates. Some state and local governments offer low-cost reverse mortgages to seniors, which tend to have more favorable interest rates and fewer or no fees associated with them. However, as mentioned above, these programs are typically very restrictive in terms of qualification and location, and many regions, states, and areas do not have such programs at all.

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Top 10 Things You Should Know About Reverse Mortgage

Fri, 25 Aug 2006 14:34:28 -0800

Laura Coffey highlights top 10 things you should beware before you jump on the reverse mortgage bandwagon.

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When You Shouldn't Consider Reverse Mortgage

Wed, 23 Aug 2006 14:24:57 -0800

National Consumer Law Center's publication on reverse mortgage tips can be seen as a warning to many who are not suitable for the expensive and complex product.

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Three Types of Reverse Mortgages

Tue, 22 Aug 2006 06:37:46 -0800

FTC offers a candid introduction of the three reverse mortgage types: single-purpose reverse mortgages, federally insured Home Equity Conversion Mortgages (HECMs), and proprietary reverse mortgage from private lenders. Good reading!

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House-Rich and Cash-Poor? Reverse Mortgage May Be Good For You.

Mon, 21 Aug 2006 06:31:55 -0800

Terry Savage argues that if you have too much capital gains in your home that exceed what the generous tax-free clause offers ($250,000 for an individual and $500,000 for a couple if you meet certain conditions), you may want to take out a reverse mortgage. Unfortunately, this is not a sound suggestion. Reverse mortgage usually carries astounding price tag in terms of closing cost or "hidden fees." A better option for home-equity millionaires is to take out a standard home equity loan or home equity line of credit (HELOC).

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Reverse Mortgage: The Cost Rundown

Sun, 20 Aug 2006 06:24:34 -0800

Buyer's beware: reverse mortgage will carry a much higher closing cost than a typical home equity loan. You can easily pay 4-5% of the loan principal before you get a dime. (And that's why the government will require you take a mandatory consultation session before you sign the dotted line.)

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Reverse Mortgage Is Tax-Free, But Sometimes Not Tax Deductible

Sat, 19 Aug 2006 06:20:08 -0800

The tax impact of a reverse mortgage is tricky. The loan itself is tax-free, means you don't pay tax for the amount you borrow. Plus, since reverse mortgage is a form of home equity loans, you are also entitled to deduct some interest too. However, if you borrow more than $100,000, not all your interest expense is deductible.

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Reverse Mortgages: More Money for the Elder

Fri, 18 Aug 2006 06:11:50 -0800

Jeff Brown from Knight Ridder Newspapers discussed the dynamics of reverse mortgage. Because the total money owed in a reverse mortgage loan can in no case exceed the value of property, lenders usually will put a fat margin between the home equity and the money one can borrow. It makes the reverse mortgage products as an insurance for your longevity.

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Is a Reverse Mortgage Right for You?

Thu, 17 Aug 2006 06:00:40 -0800

About Retirement Planning has a step-by-step walkthrough of the reverse mortgage process. If you haven't paid attention, you have a ton of flexibility in deciding how you will get the proceeds. Be very careful since some decisions may affect your eligibility in certain government assistance programs.

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How Reverse Mortgage (RM) Will Affect Your Medicaid

Wed, 16 Aug 2006 05:55:36 -0800

Yes, improper usage of reverse mortgage proceeds will affect your eligibility for Medicaid. You may want to spend proceeds immediately, or the remaining proceeds, which are considered part of your assets, will affect your Medicaid enrollment.

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ABC offers ABC of Reverse Mortgage

Tue, 15 Aug 2006 05:49:00 -0800

ABC News gives an overview of reverse mortgage. Potential borrowers: beware that taking a reverse mortgage may affect your eligibility of Medicaid and other government assistance programs.

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Save Your Retirement With a Reverse Mortgage

Tue, 15 Aug 2006 03:21:47 -0800

Jonathan Clements from WSJ is an advocate of careful usage of reverse mortgage as a tool. Yes, reverse mortgage carries huge closing cost, but as Jonathan correctly mentioned, it is probably the only way to go for many cash-strapped retirees.

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Top Ten Things to Know About Reverse Mortgage

Tue, 15 Aug 2006 03:15:39 -0800

U.S. Department of Housing and Urban Development (HUD) is a major provider of reverse mortgage, and it maintains a great collection of reverse mortgage (RM) resources. Start with this Top-Ten list:

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What Is Reverse Mortgage?

Tue, 15 Aug 2006 03:01:58 -0800

AARP site is a great starting point of learning reverse mortgage, and especially how it is different from the traditional "forward" mortgage. Note not everyone can apply: reverse mortgage is only available to homeowners at age 62 or above.

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