Reverse Mortgages: What Does it Really Cost?

Question from our reader:

“If I take out a reverse mortgage for $200,000 on a house valued at $380,000 and pay it back in full in six months and close the loan what will it cost me besides the initial fees of getting it in the first place? Also, I am having trouble getting insurance due to two previous claims. Can the lender provide insurance for me?”

A Reverse Mortgage (Home Equity Conversion Mortgage) can be repaid at any time with no penalty. You would owe the balance on the loan at that time which would include all the money you borrowed, any fees that you rolled into the loan at the time you started the loan.

The hecm Saver Loan would have much lower start-up costs due to the fact that the Up-Front Mortgage Insurance Premium would be just $38.00 instead of $7,600.

Interest that has accrued on the balance for that time and mortgage insurance renewal premiums of 1.25% of the outstanding balance for the time that the funds remained outstanding.

In all, with today’s low rates, not much interest would accrue in just 6 months but a Home Equity Line of Credit would probably be a better bet if you only planned to have the loan open for such a short period.

Regards to Homeowners Insurance

The reverse mortgage lender will require you to have acceptable insurance on the home as a condition of the loan. The lender will not supply the insurance and lenders will require a full explanation why a home was not covered previously.

With claims issues, as long as you have the situations corrected that caused the insurance problems you should be OK, but lenders and HUD do not want to see borrowers who fail to pay their insurance or their taxes so they will require verification on the reasons for non-coverage as well as verification that the home is now covered.

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