Yin Yang of Reverse Mortgage Closing Costs
Some areas of my business are tougher than others. Tackling the question and reasoning behind the costs of getting a reverse mortgage is one of them.
The truth is HUD backed insured mortgages have higher closing costs than forward mortgages. I always make a point of telling this to my customers as soon as I can.
Reverse mortgages, which are insured by HUD, have high closing costs for multiple reasons... It starts with the lender charging costs based on the home's value. Forward mortgages charge costs on the actual loan amount, which is going to be less than value.
Also, the lender charges a fee for originating the loan called (no surprise) an origination fee. this can be 1% higher than forward mortgages. Finally, FHA's mortgage insurance premium is 2% of valuation, up to $417,000.
You don't need to pull out the calculator to get the basic gist... Costs are not so customer relations friendly.
One could argue the origination fee is not really higher than a typical mortgage, because forward mortgages simply build the fee into the rate. That's another subject for another day.
When it comes down to it, the FHA mortgage insurance is the culprit when determining why reverse closing costs are as high as they are. The thing is without this pricey mortgage insurance premium most seniors would be stuck with a second rate reverse mortgage and many with none at all.
To illustrate this point a 70 year old client with a 200 thousand $ mortgage, getting a HUD backed reverse mortgage, is entitled to receive somewhere in the neighborhood of $130,000.
There was once a number of outlets for non-FHA insured reverse mortgages. They exist only as ultra niche scenarios now. The reason is they simply couldn't compete with the FHA reverse. In our example a reverse mortgage customer, using a private product, would receive $100,000 at best.
The HUD backed product is far more potent than the other products because the insurance covers lender losses. With their bets hedged reverse mortgage lenders could simply lend more money.
The insurance covers the lender in the event that one day more is owed on the home than the home is worth. This is the lender's biggest fear.
Yes, people are going to moan and groan about the cost to get a reverse mortgage. They will do so until doomsday, but remember, these costs are the mechanism that solves financial problems for so many seniors.
The truth is HUD backed insured mortgages have higher closing costs than forward mortgages. I always make a point of telling this to my customers as soon as I can.
Reverse mortgages, which are insured by HUD, have high closing costs for multiple reasons... It starts with the lender charging costs based on the home's value. Forward mortgages charge costs on the actual loan amount, which is going to be less than value.
Also, the lender charges a fee for originating the loan called (no surprise) an origination fee. this can be 1% higher than forward mortgages. Finally, FHA's mortgage insurance premium is 2% of valuation, up to $417,000.
You don't need to pull out the calculator to get the basic gist... Costs are not so customer relations friendly.
One could argue the origination fee is not really higher than a typical mortgage, because forward mortgages simply build the fee into the rate. That's another subject for another day.
When it comes down to it, the FHA mortgage insurance is the culprit when determining why reverse closing costs are as high as they are. The thing is without this pricey mortgage insurance premium most seniors would be stuck with a second rate reverse mortgage and many with none at all.
To illustrate this point a 70 year old client with a 200 thousand $ mortgage, getting a HUD backed reverse mortgage, is entitled to receive somewhere in the neighborhood of $130,000.
There was once a number of outlets for non-FHA insured reverse mortgages. They exist only as ultra niche scenarios now. The reason is they simply couldn't compete with the FHA reverse. In our example a reverse mortgage customer, using a private product, would receive $100,000 at best.
The HUD backed product is far more potent than the other products because the insurance covers lender losses. With their bets hedged reverse mortgage lenders could simply lend more money.
The insurance covers the lender in the event that one day more is owed on the home than the home is worth. This is the lender's biggest fear.
Yes, people are going to moan and groan about the cost to get a reverse mortgage. They will do so until doomsday, but remember, these costs are the mechanism that solves financial problems for so many seniors.
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10:28 PM
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