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What Are he Upfront Costs of a HECM Reverse Mortgage?
What Are he Upfront Costs of a HECM Reverse Mortgage?

The upfront cost of a HECM is the sum of the origination fee charged by the lender, third party fees including those for an appraisal and title insurance, and the upfront mortgage insurance premium charged by FHA. All of these fees can be (and almost always are) included in the mortgage – there is no cash outlay required of the borrower.

The origination fee HECM borrowers pay lenders is capped by law at $2500 on house values of $125,000 or less, at $4,000 on house values of $200,000 or less, and at $6,000 on values of $400,000 or more. Some HECM lenders charge less than these maximums.

While third party fees vary from one part of the country to another, there are no significant differences between HECMs and standard mortgages.

The upfront mortgage insurance premium is .5% of property value when the borrower draws no more than 60% of his total HECM borrowing power at closing or anytime within the first year. If the draws exceed 60%, the insurance premium is 2.5%. Since the maximum allowable draw is only 70%, borrowers should avoid exceeding the 60% limit if at all possible.

The 60-70% rule was introduced in September 2013 as part of a package of reforms designed to reduce losses to FHA, which were exceptionally high in cases where borrowers withdrew the maximum cash allowed at closing.

Some upfront draws are mandated by HUD, including draws used to pay off an existing mortgage loan balance, and to make important repairs to the house. If mandated draws exceed the 60% level, the borrower cannot avoid the 2.5% insurance premium.