Origination Fees for Reverse Mortgages
Like just about all other types of home loans, reverse mortgages usually require an origination fee. This is a fee that the lender charges for creating the loan. You can think of it as similar to an activation charge or service charge when you open a new credit card or bank account. While origination fees can vary from lender to lender, there are caps set in place to keep them from being unreasonably high.
According to the Consumer Financial Protection Bureau (CFPB), lenders are allowed to charge up to $6,000 for a reverse mortgage, also called a Home Equity Conversion Mortgage (HECM). The exact fee amount will vary by lender and by the appraised value of the home.
If your home is worth more than $400,000…
Homes that are worth more than $400,000 have a maximum origination fee of $6,000. Pretty simple and straightforward.
If your home is worth less than $400,000…
This is where things get a little more complicated. A lender can charge a reverse mortgage origination fee of up to $2,500 if the home is valued at less than $125,000. If your home is valued at more than $125,000, lenders can charge 2% of the first $200,000 of the home’s value, plus 1% of the amount over $200,000, with the cap being $6,000.
For example, if your home is valued at $250,000, the maximum origination fee you could legally be charged is…
$4,000 (2% of the first $200,000) + $500 (1% of the amount over $200,000) = $4,500
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Is there such a thing as low or no closing cost reverse mortgages?
There are some reverse mortgage lenders that will advertise what they call a “no closing cost reverse mortgage;” however, this can be misleading, as what they really do is provide a rebate to borrowers whose loans are more profitable to them. This rebate can cover the upfront mortgage insurance premium as well as other closing costs. If a borrower’s loan isn’t profitable enough to justify a full closing cost rebate, some lenders may offer a smaller rebate to cover only some of the settlement costs. These are usually advertised as “low closing cost mortgages.”
If you work with a lender who offers low or no closing cost reverse mortgages, make sure you fully understand the terms and conditions of the reduced closing cost feature. Likewise, you should always make sure you fully understand the terms and conditions of any mortgage, no matter what type of lender you’re working with.
If you have any questions or concerns about reverse mortgage loans, we at Alpha Mortgage are here to help. We provide competitive rates on reverse mortgages for qualifying senior homeowners and are dedicated to providing open and honest information on reverse mortgage products.