Do no fee reverse mortgages actually exist? Considering that these are HECM loans, they usually fit the standard fit and fare of closing costs, origination fees and so forth. Add up all of the lines, and you have a very similar cost to close the loan as you would with a conventional loan of comparative type and value.
But wouldn’t it be great if you could avoid paying any of these fees and instead just get a competitive rate on your loan? Of course it would. Some lenders are actually competing by offering no-fee reverse mortgage loans these days, and it’s not a bad idea for the banks that are involved.
The advantage to the lender is that while they will eat the cost by waiving the fees, they make it back in the long run on the interest rate. Since reverse mortgages have a very low foreclosure rate and are secured by real property, they present a much lower risk to lenders than many other loan types.
Origination fees can really eat into your disbursed funds. They range from a few thousand to more than ten thousand, depending upon how the loan is drawn up. But with competition fierce in this sector, a lot of lenders are trying to woo consumers by offering no origination fees. These can usually range from .5% all the way to as much as 3%, which means less money for the borrower.
Don’t forget that just because you may get lucky and find a lender who waives the origination fee that there are not some other fees you should also take into consideration, like the mortgage insurance premium, which accounts for 2% of the home’s value at time of closing.
Bear in mind that you will still have to tender a HUD counseling fee and pay to cover the costs of an FHA appraisal. But being able to know that there is a way to avoid paying the costly origination fees is good news for many borrowers.
A reverse mortgage is becoming increasingly used as a means of retirement security. Protecting your nest egg is important. But make sure you take the time to fully research any options and that you also discuss a reverse mortgage with your financial advisor before making a borrowing decision.