You have probably heard the following negatives about reverse mortgages. This seems like a valid statement on the surface. If you begin to compare the costs of a mortgage to other options like moving and selling your home, you might find that they are not as high if your assets or income is other than your home. You may find that the cost of a reverse mortgage is not excessive if you really need it to make ends meet, or for financial reasons.

Let’s look closer at the true costs of reverse mortgages and how they are paid for.

FHA insured Home Equity Conversion Mortgage (HECM) has been responsible for the majority of reverse mortgage loans that have been closed in the United States. These loans are insured by FHA, backed by HUD, and are the most secure reverse mortgage loans. They also offer more options for how you can choose to receive your loan proceeds.

You will receive the following guarantees with your FHA insured HECM reverse-mortgage loan:

1. The tenure option allows you to continue receiving your reverse mortgage payments for as long as your home is in good condition. This means that you will still receive your monthly payments from your reverse mortgage, even if your life expectancy is shorter than your house’s value. Guaranteed!

2. Your estate or heirs will never owe more than the home’s value at the time of the loan repayment. Reverse mortgage loans are not revolving loans. If there is a shortfall in repayments, the lender cannot come back to your estate.

3. FHA insurance also guarantees that if your lender goes out of business, you will still receive your monthly payments and have access to credit in accordance to the terms of your original loan agreement.

You can be certain that if FHA mortgage insurance wasn’t available, there wouldn’t be many lenders willing to offer reverse mortgage loans to seniors with the same favorable terms.

The FHA insurance premium costs 2% of the loan amount. The loan includes the insurance premium and other closing costs. These costs are not out of pocket and are paid by the estate or you at the time that the loan is repaid.

Service Fee for Loans:

As part of the overall closing costs, a monthly loan servicing fee up to $35.00 per borrower is charged. Lenders charge a monthly loan servicing fee. The loan servicing fee for a forward mortgage is included in the interest rate so that the borrower is often unaware of it.

The servicing fee for a reverse mortgage is paid upfront. It is calculated using the life expectancy the youngest borrower. As long as the loan remains in force, the lender is entitled to the monthly servicing fee. If the borrower moves out of the property before the servicing fee is exhausted, the remaining balance is paid to the borrower.

Charges for Loan Origination

Lenders charge a loan origination fee to process, close and originate reverse mortgage loans. FHA caps the loan origination fees at 2% of your house’s value or the maximum FHA loan limit in your area. FHA states that in all cases, the origination fee must not be lower than $2000. (At the time this writing, Congress is discussing changing this mandate. Some lenders are known to negotiate loan origination fees to be competitive for business.

These fees make up the majority of closing costs for a reverse loan. These fees are not the only ones. You will also have additional costs that you know from any previous mortgages you have had. These fees include an appraisal, credit report and flood certification, as well as recording, document preparation, record, delivery, pest inspection, closing fee or escrow fee. Title insurance, survey. This list may or may not include all fees, depending on where you live.

Are the Costs Too High? You decide

It is better to compare the costs to the benefits of a reverse mortgage. The costs must be compared to the improvements in your lifestyle, increased income and the fact you aren’t burdening your kids at this stage in your life. The closing costs will not have an impact on your personal life. These costs are a cost to your estate when your house is sold, refinanced or paid off. A reverse mortgage is a valuable financial planning tool that can be rejected if it is not cost-effective.

If you consider selling your home, then you will be paying 6% real estate commissions. This is in addition to the typical closing costs for sellers.

repairs. Moving costs would include a down payment between 5% and 20% to buy another house, as well as moving expenses up to $5,000. You will also need to pay closing costs between 2% and 3% for a new loan. As you can see, the cost to sell your home is far less than the cost of getting a reverse mortgage.

A word of caution:

You should now be able to appreciate why reverse mortgages are more expensive than traditional forward mortgages. If you plan to permanently move out of your home within five years, you are unlikely to be eligible for a reverse loan. Industry experts agree that five years is the best time to stay in your home and make the cost worthwhile. You should think about other options, such a cash out refinance, or a home equity loan, if you fear you’ll be moving out of your home in the next five years.