As you’re taking one of these loans out, you’ll have to pay a mortgage insurance premium during closing and annual MIP for the whole loan’s life. The MIP fee during closing is calculated upon the lesser of the appraised value of a home or home equity conversion mortgage loan limit–which is currently $625,500. In many instances, you have to pay .5 percent.
Although this isn’t an upfront expense, it’s important to state that you also will pay an insurance premium all throughout the loan’s duration. This fee is 1.25 percent of the balance.
Origination Charge
Before getting a reverse mortgage quote, you should know that those fees will vary from one lender to another, even though they’re capped by the FHA. For the house valued at $125,000 or under, the origination charge is capped at $2,500. For the house worth over $125,000, a lender is permitted to charge 2 percent on the initial $200,000 and 1 percent of the home’s value above $200,000, for the maximum of $6,000.
There are a lot of details to digest here; therefore, let us consider a reverse mortgage instance or two.
1. House Valued at $100,000
As the value of the home is fewer than or equal to $125,000, a lender may charge any quantity up to $2,500. The charge isn’t based upon a percentage of a property’s value.
2. House Valued at $175,000
As the house is valued over $125,000 yet under $200,000, a lender is permitted to charge a max of 2 percent of a property’s value, which would be a maximum of $3,500.
3. House Valued at $250,000
As the house is valued higher than $200,000, the math here is somewhat more complex. For the initial $200,000, a lender may charge up to 2 percent. For the rest of the $50,000, a lender may charge a maximum of 1 percent. Here is how it’d work out:
$200,000 * 2 percent is $4000
$50,000 * 1 percent is $500
Therefore, the charge is capped at $4,500.
However, not every lender charges the max fee possible. There are even some cases in which you will be given a rebate. The only method of finding the lowest charges includes comparing several offers, and unfortunately many consumers do not comparison shop.
