As with any mortgage, there are costs associated with setting-up the loan. We are 100% transparent and will explain in detail every cost involved in obtaining a reverse mortgage.
Let’s start with the out-of-pocket expenses.
Home Appraisal: there is only one small upfront expense and that is for an independent home appraisal. This is not unique to reverse mortgages as 99% of traditional banks also require appraisals for home financing applications.
The appraisal is only requested by the lender once they have reviewed your application and documentation. It’s a good sign when they ask for an appraisal. It usually means they are happy with everything else and just need to confirm the value, condition, and marketability of your home.
The appraisal cost depends on the value and location of your home but is on average around $300-$350.
It’s important to note the expense is incurred even if you change your mind and do not take-out the reverse mortgage.
Next are the expenses that are deducted from the mortgage proceeds and not paid out-of-pocket.
Independent Legal Advice: we are very thankful that reverse mortgage lenders require you to obtain independent legal advice. A lawyer of your choice reviews the mortgage documents with you to ensure that you fully understand the terms and conditions of the loan. The lawyer also ensures that you are not being coerced by a mortgage agent or even a family member into taking the loan. This sort of professional advice typically costs between $400-$600. Remember, the charge is deducted from the new mortgage proceeds and not from your pocket.
Legal and Administration: the lender (not the mortgage broker) will deduct $1,795 from the amount you borrow. This is a one-time charge that covers the cost of registering the mortgage on title. Like the appraisal requirement, this costs is not unique to reverse mortgages. We all incur a similar cost to secure a regular mortgage, home equity line of credit, or reverse mortgage against our home.
That’s it; there are no other fees associated with taking-out a reverse mortgage. There are only three costs which again are appraisal, independent legal advice, and legal/administration. The only out of pocket expense is the appraisal.