Rates & Fees
Interest rates depend on several factors: the bank you're using, the current market and the type of loan you're seeking: fixed-rate or adjustable. Fixed rates generally are comparable to traditional mortgage rates. A benefit of fixed-rate loans is the security that the interest rate will never change over the life of the loan. The interest rate on adjustable-rate loans can change monthly or annually. Adjustable reverse mortgage rates are based on the London Interbank Offered Rate Index or LIBOR. A benefit of adjustable-rate reverse mortgages is more disbursement options to fit different lifestyles.
In 2015 a total of 56,363 reverse mortgages were closed with interest rates averaging approximately 3.38 percent, representing $9.3 billion in loan financing. Massachusetts had the lowest average interest rate at 3.09 percent, while Wyoming had the highest average rate at 3.53 percent.
Just as with a regular home mortgage loan, you'll be responsible for paying some fees to set up and manage your reverse mortgage. Following are the fees you're likely to encounter in obtaining a reverse mortgage.
Mortgage Insurance Premiums
With a reverse mortgage, you'll be charged annual mortgage insurance premiums to help pay the Federal Housing Authority (FHA) to administer the loan if your lender goes out of business. Mortgage insurance also ensures that neither the borrower nor his or her heirs will owe more than the fair market value of the home, as determined by a licensed FHA-certified appraiser, when it’s sold to pay back the loan. At closing, most homeowners will pay .5 percent of the appraised value of the home. If you borrow more than 60 percent of the appraised value, the mortgage insurance premium will be 2.5 percent of the appraised value up to $636,150, which is the HECM loan limit for the up-front mortgage insurance premium. For the life of your loan, you also will pay an annual 1.25 percent fee for the balance of your loan.
Your lender or broker will charge an origination fee between $0 and $6,000 depending on your property value. The origination fee covers the lender's costs for processing the loan. It should be the only fee that is directly paid to your lender.
Monthly servicing fees are paid to the lender for maintenance activities on the loan. Though the servicing fees generally are $25 to $35 month, they frequently can be avoided.
Borrowers may encounter a number of routine mortgage-related fees, such as appraisal, survey, title and credit fees.
Read more about the reverse mortgage process or continue to the next section on why would one get a reverse mortgage.