HECM Loan Fees
HECM Loan Fees are usually less than privately insured reverse mortgage loan fees, especially when the difference in interest rates and the absence of credit line growth are factored into the calculation. In order to compare HECM loan fees to private or proprietary reverse mortgage fees, you should first obtain a side-by-side comparison produced by software that meets AARP model specifications for comparing reverse mortgages.
HECM Loan Fees Breakdown
- Mortgage Insurance Premium – MIP is one of the most important HECM loan fees. MIP is what guarantees that you will receive your promised loan payments and never have to repay the loan for as long as you live in your home. MIP is also what guarantees to you and your estate, that no matter how long you live and how much your reverse mortgage balance grows, you and your heirs will never owe more than the value of your home at the time the HECM loan is repaid. MIP also provides loss protection to the lenders. Without this insurance premium there would be few lenders willing to make reverse mortgage loans. If you outlive your life expectancy and your home is worth less than the balance of the reverse mortgage at the time of repayment, the FHA HECM Mortgage Insurance fund pays the lender for any shortfall – not you or your estate. Additionally, if a lender should go out of business, the HECM mortgage insurance fund will continue to provide you with your loan advances or other benefits that you chose as part of the reverse mortgage you selected. The mortgage insurance premium is paid by all HECM reverse mortgage borrowers and is one of the substantial costs included in the overall HECM loan costs. MIP is the component that makes HECM reverse mortgages safe and viable for you and your family.
- Loan Servicing Fee – HECM loan fees include mortgage loan servicing fee, as does any mortgage whether it be a forward or a reverse mortgage. Most lenders that originate mortgages of any type, later transfer the duties of collecting the payments and providing borrowers with monthly and annual statements regarding the status of their loans to other loan servicing companies or offices. FHA limits the loan servicing fee to $30 per month on annually adjustable HECM reverse mortgages, and $35 per month on monthly adjustable HECM reverse mortgages.
- Loan Origination Fee – Included in HECM loan fees is the loan origination fee. This is the fee that the lender receives for providing you with the loan. It covers expenses such as the salary or commission for the reverse mortgage specialist that meets with you and takes your application for the reverse mortgage. It also helps the lender defray the cost of processing your loan application for approval and preparing your loan closing documents. FHA limits the loan origination fee to $6,000. Some lenders charge less, but they are not allowed to charge more than the HECM-FHA limit. Generally, the only HECM loan costs that lenders have any control over, are the loan origination fee and the loan servicing fee.
- Third Party Fees – As part of the overall HECM loan fees, there will be necessary services that the lender is unable to provide directly. Some examples of third party services and fees are; title insurance, appraisal report, survey, inspections, recording fees, and attorney fees. Third party fees can vary regionally and by the value of your home. However, most HECM loan fees for third parties will be customary in any given geographical location.