Since there are no Payments, Does this mean that this is a No-Cost Loan?
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This is not really a simple question. With a reverse mortgage, you generally will not have any out of pocket expenses. With a traditional loan, you usually have to pay for many or all closing costs up front, as well as providing a down payment.

On the other hand, there are actually costs that are associated with a reverse mortgage. Most of these are similar to the costs that you would pay to get an original home loan or refinance loan. You will have your origination fee, the appraisal fee, and other closing costs, as well as a mortgage insurance premium if you are choosing a Home Equity Conversion Mortgage.

Again, since these charges and fees all have set caps and are usually financed into your reverse mortgage, it often seems for all practical intents and purposes that a reverse mortgage is a no-cost loan. It is still important, however, to understand what each of the costs and fees are.

The Origination Fee

Origination fees are designed to cover your lender's expenses. Think of it as a processing fee. If you choose a HECM loan, then the amount charged for this fee is set at a cost equal to either two thousand dollars or two percent of the highest Federal Housing Administration loan limit available in your county, whichever is greater. This means that your origination fee usually ranges between approximately $4,000 and $7,000. Keep in mind, however, that this fee is usually financed into your reverse mortgage.

The Mortgage Insurance Premium

The MIP is a guarantee that if the loan servicer goes bankrupt, the government steps in to ensure your the ability to access your loan. It also guarantees you can never end up owing more on your home than it is worth. If you choose an HECM loan, your MIP will be two percent of your home value or maximum claim amount, whichever is less, with an additional .5% annual premium based on your loan balance.

The Appraisal Fee

Your appraisal is required to find the current value that your home has. The appraiser is also required to check for structural defects because Federal rules state that your property must meet all safety codes and be sturdy and sound in structure in order to qualify for a reverse mortgage. This appraisal fee is usually about $350.

The Service Fee Set-Aside

This fee is usually taken from your total available loan proceeds at closing in order to cover the cost of servicing your account for the coming years. Federal law allows your loan servicer to charge a monthly fee of $30-$35. The total amount set aside at closing depends mostly on your age and life expectancy and can amount to a few thousand dollars.

Additional Closing Costs

There may be additional closing costs, similar to those that are involved in any home loan. These may include a fee for your credit report, settlement charges, document preparation and recording fees, courier fees, title insurance, and pest inspection.

With a reverse mortgage there are expenses, but these are usually rolled into the loan itself. That means that these costs are only actually paid once the loan becomes due, which is usually after the borrower dies. The costs ultimately come out of the proceeds of the sale of the home itself, rather than from the borrower. In effect, you do end up with a loan that has little or no cost to you during your lifetime.

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