After reverse mortgage rates the second most common question I get is in regards to the fees associated with setting up a reverse mortgage.
When people get to the point where they believe a reverse mortgage is right for them they have a feeling that it is too good to be true. The fact that a reverse mortgage does not require any payments seems suspicious to some, maybe even to good to be true. By reading this article you will know every single cost to set up a reverse mortgage.
Have the peace of mind knowing that there are no buried cost or hidden fees.
I classify the cost the setup cost of a reverse mortgage into categories. The first category are costs that must be paid upfront by you, and the second category are costs that are deducted from the amount you borrow (not out of your pocket).
- Upfront costs: $ 250 – 500
This first category of cost is quite simple because there is only one: an appraisal. The appraisal is the only cost that will come out of your pocket throughout the entire process. Appraisal costs vary depending on where you live, value of you home, and how quickly you would like to get it done. Generally appraisals in the greater Toronto area come in at around $300 plus tax.
So why is an appraisal needed?
The simple answer is because a reverse mortgage is not approved based on your income and credit score rather primarily on property value and location.
So why is this important?
The marketability and the belief that your home will continue to grow in value is important from the lender’s perspective. The property is the only assurance that they will get paid in the future for the loan that they give you today. the lender needs to be absolutely certain that your home is a good investment and has the potential to be sold quickly once the reverse mortgage needs to be paid out.
- Deductible costs: $1,950 – 2,200
The second category of costs that are incurred are not required to be paid out of pocket, rather they would be deducted from your approved reverse mortgage amount.
For example you receive a reverse mortgage for $100,000 and the deductible costs are $2,000 you would receive a lump sum of $98,000.
If you wish you can choose to pay the deductible costs upfront, however the vast majority of boars have them deducted instead.
Please deductible costs are split into two different sets of legal costs
Independent legal advice ILA: $400 – 700
Independent legal advice is an important requirement of the lender. It ensures that you are not signing anything that you feel pressured or pushed into without consulting an independent legal expert.
Just like appraisals legal fees very across Canada and from lawyer to lawyer. the typical cost for independent legal advice in the greater Toronto area is approximately $600.
Legal, administrative and setup costs: $1,795
This fee is applied to the cost of registering the mortgage on title, this fee incurred is similar and cost as to registering any other type of mortgage in Canada.
This cost is unfortunately unavoidable and forms part of our mortgage laws in Canada. In Canada you must pay a lawyer to register a mortgage on title just like a home equity line of credit HELOC or a traditional mortgage.
Again as a reminder the independent legal advice and the administrative set-up costs are both deducted from the amount that you receive and are not a out of pocket cost.
In summary – fees to set up a reverse mortgage
After reviewing the content above you should have a clear understanding of all the costs to set up a reverse mortgage. It’s difficult to predict exactly what appraisers and lawyers will cost because they vary in price from location to location. The most important thing to keep in mind is that the only cost that must come out of your pocket is the appraisal which generally ranges in price from $250 to $500.