The Cost of a Reverse Mortgage

Our last post on reversible mortgages generated a question about fees and expenses. Most mortgage broker sites we have come across only glorify the reverse mortgage and never mention fees, so we wanted to detail reverse mortgage fees that a typical consumer might face.

Reverse Mortgage Fee – Make an Informed Decision

First, you should be very clear of any reverse mortgages fees before you start the application process. Just like buying a car, you don’t want to find out about unexpected reverse mortgage expenses once you have already emotionally committed. Make sure the reversible mortgage lender is crystal clear from the get-go about what fees you can expect. Don’t be embarrassed to ask questions, the informed consumer is the one who gets the best deal!

Reverse Mortgage Costs Comparison

There are only two reverse mortgage brokers in Canada, Seniors Money and CHIP. Each charges different reversible mortgage fee amounts, which are outlined below.

Seniors Money Reverse Mortgage costs
There is an initial set-up fee of $1275 with Seniors Money, which includes the cost of a third-party appraiser. Seniors Money offers an Equity Protection Option, which will ensure that certain amount of equity remains in the house, for a one-time fee of $295. They also offer a Top-Up Option at $95 per advance.

CHIP Reverse Mortgage costs
CHIP charges an initial reversible mortgage set-up fee of $1485, which does not cover a third-party home appraisal. With CHIP, you will be required to pay for your own home appraisal, a cost that CHIP quotes at $175 – $400. They do not offer any additional reversible mortgage options like Seniors Money does.

Legal Counsel for a Reverse Mortgage

Both CHIP and Seniors Money require you obtain independent legal advice before closing a reverse mortgage. This is to make certain that you fully understand the reverse mortgage before you enter into it. You will sign the reversible mortgage documents with the lawyer, who returns it to the lender. This legal advice will typically cost $200 – $700.

Reversible Mortgage Fees are Financeable

Both lenders can deduct all the expenses of reversing your mortgage, except the independent legal and appraisal fees. The fee expenses are then added to the mortgage debt. Unless you are strapped for cash, you should just pay the fees out of your own pocket. Why? Because if you finance these fees, you will be paying them off over the course of many years, adding unnecessary interest that you must pay.

Total Reverse Mortgage Fees

Depending on which reverse mortgage provider you go with the total costs can range from about $1800 with Seniors Money (assuming a $500 legal bill), to about $2300 with CHIP (assuming a $500 legal bill and a $250 appraisal cost).

Which reverse mortgage lender is right for you depends on a whole lot more than the fees. Make sure to do your homework and pick the right lender for you.

Last week, Seniors Money International became just the second company in Canada to offer reverse mortgages. Canadian Home Income Plan Corp., or CHIP, has offered reverse mortgages for the last 20 years without competition. So what does all this mean for you?

Lets start out by looking at what exactly a reverse mortgage is by contrasting it to a normal mortgage. In a mortgage the homeowner makes a monthly payment to the mortgage lender. After each payment, the homeowner’s equity increases within his or her property. At the end of the term, the mortgage is paid in full and the property is released from the lender. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, then the debt on the property increases each month.

A reverse mortgage is appealing to seniors because they can get money for their house without having to move. Let’s face it, selling your house and moving to a new one is a daunting task for anyone, espicially for older people.

In an interview with CBC, a CHIP official was quoted as saying, “The debt (from a reverse mortgage) will increase and it will double every seven to eight years. That’s a financial fact.” In addition to the compounding debt, there are initial costs of setting up the reverse mortgage, which is usually at least $1000.

So what are your alternatives if you want money but don’t want a reverse mortgage? Consider taking out a line of credit with the house as collatoral (called a reverse mortgage line of credit), or rent out a portion of your home. If you don’t mind moving, consider downsizing to a smaller home or simply rent an apartment.

Many experts say only consider a reverse mortgage as a last option. Critics of the financing option say it takes advantage of seniors who don’t want to leave their homes and often don’t fully understand what they are getting into. Regardless of your choice, be sure to educate yourself on all aspects of the reverse mortgage.

Is a reverse mortgage right for you? If you answer “no” to any of these, you may want to seek other options.
• Does owning a house benefit you more then living in an apartment would for now and in the future?
• Can you accept the fact that your debt from your reverse mortgage can double in less then seven years, thanks to compounding debt?
• Can you cover all home expenses, including taxes, and insurance? If not, the lender may be able to demand full mortgage
repayment!
• Do you know all of the options besides a reverse mortgage that are available to you? Do you know the market value of
your house right now?