Mortgage Refinancing - Reverse Mortgage Fees

Many of the same costs that someone pays to obtain a home purchase loan, or to refinance their existing mortgage, apply to reverse mortgages too. In most cases, these fees and costs are capped and may be financed as part of the reverse mortgage.

Besides interest, getting a reverse mortgage typically involves four types of fees:

An origination fee. The origination fee covers a lender's operating expenses—including office overhead for making the reverse mortgage.
Under the HECM program, which accounts for 90% of all reverse mortgages made in the U.S., the origination fee is equal to the greater of $2,000 or 2% of the maximum claim amount based on county FHA loan limits.

Proprietary reverse mortgage borrowers are charged an origination fee that may not exceed 2% of the value of the home. With either product, the entire amount of the origination fee may be financed as part of the mortgage.
Third-party closing costs. These fees are not controlled or determined by the lender, and vary by state. These costs could include:
- Appraisal fee. 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.
- Flood certification fee. Determines whether the property is located on a federally designated flood plane.
- Escrow, Settlement or Closing fee. Generally includes a title search and various other required closing services.
- Recording fee. Fee charged to record the mortgage lien with the County Recorder's Office.
- 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. Cost of title insurance 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. Pest Inspection. Determines whether the home is infested with any wood-destroying organisms, such as termites.
- 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.
Mortgage insurance premiums. 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.
Service Fee Set-Aside. The service fee set-aside is an amount of money deducted from the available loan proceeds at closing to cover the projected costs of servicing the reverse mortgage 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 usually ranges between $30-$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. Note: The servicing set aside is just a calculation and not a charge. The only amount added to the loan balance is the monthly servicing fee.

A useful reference for comparing the cost—including interest—of different reverse mortgage programs is the Total Annual Loan Cost (TALC), which expresses all of the loan’s various costs as an annual percentage. This formula serves a purpose similar to that of the Annual Percentage Rate (APR) that is often used to compare forward mortgages.