Short Answer: In addition to closing costs, homeowners must pay property taxes and insurance, and costs to maintain the home.
Reverse mortgages, like many financial products, have costs associated with them, including some that need to be paid up-front.
Costs may include:
Credit report fee: Verifies any federal tax liens, or other judgments, handed down against the borrower. Cost: generally between $20 to $50
Flood certification fee: Determines whether the property is located on a federally designated flood plan. Cost: generally about $20
Escrow, settlement or closing fee: Generally includes a title search and various other required closing services. Cost: can range between $150 to $800 depending on your location
Document preparation fee: Fee charged to prepare the final closing documents, including the mortgage note and other recordable items. Cost: $75 to $150
Recording fee. Fee charged to record the mortgage lien with the County Recorder’s Office. Cost: can range between $50 to $500 depending on your location
strong>Courier fee. Covers the cost of any overnight mailing of documents between the lender and the title company or loan investor. Cost: generally under $50
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 property. 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. Cost: generally under $100
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. Cost: generally under $250
Note: Cost estimates can change over time, and some of these costs may not be necessary.
Interest: Interest is charged each year just as with other mortgage products. On a traditional mortgage loan, interest along with principal is paid each month by the borrower until the loan is paid. With a reverse mortgage, the opposite occurs — the borrower receives principal each month (and pays no interest) until the loan is due and payable at which point the principal and the interest must be paid off.
MIP (mortgage insurance premiums): HECM reverse mortgage borrowers are charged MIP on an annual basis, however these fees accrue over time and are paid once the loan is due and payable. The annual mortgage insurance premium is 1.25 percent of the outstanding loan balance.
Responsibility for home costs: Continuing to pay property taxes, insurance, maintenance and other homeowner costs is required with a reverse mortgage loan. With the involvement of lienholder, the possibility of foreclosure exists if the borrower violates the terms of the mortgage such as by not paying property taxes or neglecting the property. Note: borrowers have a legal right and a window of time to cure a default to prevent or stop a foreclosure from the lender.