One of the biggest criticisms of a Reverse Mortgage in Kansas City Missouri is the perception that the costs are high. While they are higher than traditional mortgages they also provide features that traditional mortgages don’t. We’ll leave that argument for another today.
The costs involved in a Reverse Mortgage in Kansas City Missouri include traditional mortgage costs like appraisal, title, closing fees, and recording fees. These fees are largely fixed and very difficult to achieve much in savings.
One area that gets a lot of negative press is the origination fees. These are common in many areas on traditional loans not so much in the Kansas City Missouri market. Many times they are referred to as points (a point is 1% of the loan amount) and they are capped on FHA Reverse Mortgages at 2%. Basically, you can pre-pay a chunk of your interest (points) and get a lower rate or don’t pay them upfront and get a higher rate.
This fee can be negotiated but will likely be set off by having a higher margin. For instance, a loan with a 1.25% margin may not pay any yield spread premium where a loan with a 1.75% margin may pay 1.5% in yield spread premium.
You could possibly get your origination fees lowered by 1.5% if you agreed to take a .5% higher margin, but you would be paying .5% more every year on your loan. On a $100,000 that is $500 per year. So pre-paying 2% on a $200,000 appraised value ($4,000) is only 8 years at $500 per year.
There is also a 2% Mortgage Insurance Premium that is not negotiable either. It is a fee paid to FHA to guarantee that you won’t be kicked out of your house and that you will never owe more than the house is worth. (A pretty reasonable amount considering what it gives you.)
Another way to cut your costs is to negotiate the lower monthly service fee. They can be $35, $30 or $25. The $25 dollar one saves you $120 per year and the higher monthly service fee allows the lender to make more money in yield spread.