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Thursday, August 20, 2009

Reverse Mortgage Loans (Costs, Interest Rates & Fees)

There are some costs to getting a reverse home mortgage that you need to be aware of. The costs involve four types of fees, plus interest, at the closing of your new mortgage. The four fees are an origination fee, third-party closing costs, mortgage insurance premiums, and a low monthly service fee of $20-30. Many people choose to finance the fee into their mortgage.

The Total Annual Loan Cost (TALC) determines the interest rate and is similar to the typical Annal Percentage Rates used with common forward mortgages. There is one fee that cannot be financed through the loan and that is the fee for required counseling service provided by HUD. This fee must be paid upfront. The interest cost is dependent upon the current interest rates and that rate which you secure at the start of the loan.

Two interest rate options are available for the reverse home mortgage. Both are beneficial an personal needs should be considered before choosing which option you prefer. One option is the fixed-interest rate. With the fixed-rate option borrowers are secure that they will have the same interest rate for the entire loan. The fixed-rate loan is paid out as a lump sum payment, one time, and is perfect for those needing access to the large funds earlier.

The second option is the variable-interest rate. This option means that as interest rates fluctuate the interest being accrued will also vary. There is a bit more risk involved but also a lot more choice to the borrower. The choices involved with a variable-rate option are that it offers the greatest amount allowed in equity for disbursement to the borrower. With a variable-rate there are choices for an immediate advance of funds and provides several options for disbursement of funds.

Borrower who chose the variable-interest rate can choose to have the funds in monthly installments, as a line of credit, in a lump sum payment, or any combination of these options. Distribution of payments can be changed as often as the borrower would like as things come up in daily life and funds might be needed. It is up to you on which plan would best meet your financial needs best.

The fees and costs of using a reverse home mortgage are congruent with the majority of other loans available. Only with the reverse home mortgage there is the additional benefit that your equity will be paid out to you, when you want it, to spend how you want to.


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