Federally-insured reverse mortgages
First, Reverse Mortgage Lenders can impose an origination fee up to $6,000 based on the home's valuation. The 2% charge you mention is HUD mortgage insurance, and the lender gets none of it. It's insurance paid to HUD to protect the loan from borrower default. You may think that amount is outrageous, but in 2015, Congress almost shut down the program due to a $5 billion shortfall caused by property value shortfalls upon borrower's death and defaults and claims payments made to the Mortgage Insurance Premium (MIP) fund for things like taxes and insurance borrowers failed to pay and HUD had to advance on their behalf. Due to the catastrophic losses, HUD adopted financial assessment rules to prevent borrower tax and insurance defaults and changed upfront and renewal MIP premiums. Now. HUD's initial hike in MIP premiums has been decreased.
State prices vary.
Every other fee listed is a third-party fee. Florida has the highest Documentary Tax Fees, Intangible Taxes, and Title Insurance Costs of any state. Title fees, document fees, credit report fees, tax service fees, and every other fee listed are all charges from other companies who provide those services for reverse mortgages (a specialised lending process). Reverse mortgage lenders cannot, by law, add even one penny to their fees or state regulators can fine and licenses are at risk if a pattern of overcharging is shown. Reverse mortgage lenders undertake frequent audits in Florida and every state where they hold a lending licence. If a lender charges $37.50 for a credit report, there must be an invoice for $37.50, and so on for every fee in the file, to the cent. A lender can charge an origination fee, which is the only expense in your package.
Reverse mortgages are not short-term loans.
Reverse mortgage closing costs are “front end loaded,” meaning they're paid up front. Reverse mortgages are a bad short-term choice. The loan was meant to be your last, not a short-term solution. TALC (Total Annual Loan Cost) disclosures show this. If you read the TALC disclosure from left to right, you'll discover that it has a very short repayment time. If repaid in a year or two, the loan fees can be above 40%. When you shift to the right and stretch out the loan over 17 years, the cost is sometimes decreased to 4% or less (I don't know what yours says). If you read our articles and blog posts, you'll see why reverse mortgage businesses warn consumers a reverse mortgage is not a smart choice for a short-term loan and they should consider a Home Equity Line of Credit (HELOC) instead. Choose the best loan product for your aims.
Reverse mortgages get cheaper over time.
The HELOC won't keep you debt-free for 17 years, but the reverse mortgage will. HUD takes a risk by insuring a loan against losses they may not see for years, thus you must pay for insurance to get a loan. It's not the reverse mortgage lender who charges for insurance, and it's your decision whether the loan is good for you. If you have difficulties with HUD's program, administration, or costs, contact HUD or Congress since they can make changes. AARP is aware of the program and has a complete write up on it on their site, which includes your concerns about the HUD Mortgage Insurance fees for the loans being based on the appraised value, the other fees involved, and the capped $6,000 origination fee that I mentioned above (it's a very good article and I recommend you read it).
Never felt bad being honest with folks and letting them make their own housing decisions. This financing program isn't “sold.” We can only provide individuals honest information; it's up to them to talk to their financial advisors, family, or trusted sources and make the proper decision based on their goals. We respect if you decide against this financing. You now have accurate knowledge and may act accordingly.
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