12 Truth About Closing Costs

You’ve worked hard to build the equity in your home. Now it’s time for you to take advantage of your wise investment. Knowing how much money you can access with your reverse mortgage will make you an educated borrower and help you plan for your future.

A Reverse Mortgage is not the best solution for everyone. Many Reverse Mortgage companies will neglect to tell you that, though. It is likely that in your initial inquiries, you just want the numbers, not to be pressured by a mortgage “professional” into a commitment you are not yet willing to make.  (I am guessing that you would prefer to be spared the hassle of unsolicited email spam and strangers calling you out of the blue that somehow already have your personal information.) Unfortunately, it is common to be inundated with solicitations and pressure from many lenders simply because you raised an inquiry.

Our approach is different by the fact that we’ll wait for you to reach out to us and we do not pressure you or your family into the HECM program.  Frankly, we want you to like us and, more importantly, trust us!  We don’t play a “numbers game” like the telemarketers and spammers.  We are your neighbors and want to maintain our good reputation in the community.  

Most Reverse Mortgage calculators are conservative (using higher rates and fees) and will show an amount available that is typically less than what we can get for you.  Why?  Because we live in New Mexico and are not in another state guessing what the costs are.

But, if you wish to have the most accurate analysis, please give us a call; we are happy to visit with you. 

What are the upfront costs associated with a reverse mortgage?

Most of the costs can be financed directly into the reverse mortgage.  This would include the charges incurred by the title companies, origination fees or points and other closing costs.  The only out of pocket expenses the borrower should expect to pay out of pocket (or on a credit card) is the counseling fee and the appraisal. The counseling fee will not be more than $125 but can vary by counselor and your financial health. This fee is charged by the counselor and is not a fee from New Mexico Reverse Mortgage. 

The appraisal fee is paid by you directly to the Appraisal Management Company (AMC) who then locates an FHA certified appraiser who will give your property a value.  The cost of the appraisal ranges from $475 and up.  This fee is non-refundable and used to cover the appraiser’s expenses and can vary depending on the complexity of the appraisal and the location of the property.

Other cost/fee considerations:

Servicing Fee & Set-Aside

A lender typically earns monthly fees, known as servicing fees, for its administration of the loan. These can be a fixed monthly amount or calculated into the interest rate on the loan. If a fixed monthly amount is to be charged, an amount of funds will be "set-aside" from the loan proceeds, to be used to pay this monthly fee.

The service fee set-aside is deducted from the available loan proceeds at closing to cover the projected costs of servicing your account. Federal regulations allow the loan servicer (which may or may not be the same company as the originating lender) to charge a monthly fee that is no higher than $35. The amount of money set-aside is largely determined by the borrower’s age and life expectancy. Generally, the set-aside can amount to several thousand dollars.

Mortgage Insurance Premium

The Mortgage Insurance Premium (MIP) is a fee paid by the borrower to the Federal Housing Administration (FHA), an agency of the federal government, to provide certain protections for both the lender and the borrower in a HECM reverse mortgage. If the company servicing the loan is interrupted, FHA assumes responsibility for the loan, providing the borrower with uninterrupted access to proceeds from his or her reverse mortgage.  In cases where the sale of the home is not enough to pay back the reverse mortgage; this insurance protects the borrower or estate from owing more than the sale price by covering losses incurred by the lender.  The MIP paid at closing is based on the amount of funds withdrawn during the initial year.

As long as you don’t take more than 60 percent of the available funds in the first year, you will be charged an upfront MIP of 0.50 percent of the appraised value of the home.  If, however, you take more than 60 percent, the upfront MIP will be 2.50 percent. As an example, on a $200,000 home, 2.5 percent is $5,000 versus 0.50 percent or $1,000.

You also are charged MIP on an annual basis, however this fee doesn't come out of your available loan proceeds. Rather, it accrues over time and you pay it once the loan is called due and payable. The annual premium is equal 1.25 percent of the outstanding loan balance.