Probably the biggest concern people have over doing a Reverse Mortgage are the high initial costs. This is a valid concern, but there are protections that a RM offers that a standard loan does not. Let me explain, the biggest cost to do a RM is the IMIP or Initial Mortgage Insurance Premium. For years this fee has been set at 2% of the appraised value and it is what makes this program safe. It guarantees, you can never owe more than the home is worth, that you can live in the home for life, and it also guarantees your monthly payout or Line of Credit qualification cannot lower or be taken away.
Compare this with a standard HELOC with no Mortgage Insurance Premiums. In 2008 and 9 when home values dropped many banks froze the Line of Credit stopping a consumer from pulling any more money out. Many seniors that used a HELOC instead of a RM lost their homes. They were making part of the HELOC payment from the available funds on the HELOC and when the funds were frozen, the payouts stopped and they were foreclosed losing their homes and all of their equity.
Getting back to the fees, 10 years ago, it was not uncommon to see initial fees as high as $16 – $18k to get a RM. The fees have come down significantly. Some of the loans available now have fees as low as $2,700 (130K appriased value. Appraisal and counseling fees separate). If one elects for a Fixed Rate RM there is an option to have $0.00 Origination Fee. Today the IMIP fee ranges from 2.5% of the appraised value or .5% of the appraised value. To get this fee at .5% you just need to keep your initial disbursement under 60% of the available funds; over 60% is subject to the 2.5% fee. For example, a $300,000 home at the 2.5% mark would be an IMIP of $7,500.00 and at the .5% mark is only $1,875.00 a savings of $5,625.00. One of the little known details of a RM is that the IMIP is geared to last to the youngest borrowers’ 100th birthday, if the loan is paid off by refinance or by selling the home, the remainder is refunded. For example, a 70 year old borrower has a IMIP fee of $3,000 the amount actually used each year is only $100 per year. If she was in the RM for 10 years, $2,000 of this fee is refunded. If the person elects to refinance into another RM to get more money, the original IMIP is applied towards the closing costs of the new IMIP. Just like most things, as you learn more about a subject you may find that there are erroneous beliefs held by many people, but that does not make them correct. In fact, many of these people would receive a significant relief if they would do a little research. To anonymously find out what a RM could do for you, click on the link HERE for our RM calculator.
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