Take Surprise Out of Reverse Mortgage Fees

When it comes to an HECM, the interest rate isn't going to vary much from lender to lender, said Ken Scholen, director of the AARP Foundation's reverse mortgage education project.

"So you should focus on the fees," Scholen said.

And what are those fees? Here's what you can expect:

• An appraisal fee. You will need to get an appraisal so the lender can determine how much your house is worth. Appraisal fees generally range from $300 to $400, according to the National Reverse Mortgage Lenders Association.

• An origination fee. This fee is for preparing and processing your loan. Under the HECM program, this fee is limited to 2 percent of your home's value or 2 percent of the FHA loan limit for your area, whichever is less. Lenders have the right to charge you a minimum $2,000. If your home is valued at $200,000, the origination fee could be as high as $4,000 (the 2 percent maximum). Some lenders do charge less than the maximum (bless their profit-making hearts). So, Scholen said, you may be able to negotiate with the lender over this particular fee.

• Mortgage Insurance Premium. Insurance for a reverse mortgage benefits both the lender and the borrower. It pledges that a borrower will receive all payments due as long as he or she lives in the home regardless of what happens to the home's value. It also insures that the lender will receive full repayment of a loan balance. The premium for a reverse mortgage cannot be more than 2 percent of your home's value (or 2 percent of the FHA maximum loan amount for your area, whichever is less). There is also an annual insurance premium of no more than 0.5 percent added to the interest rate charged on the loan.

• Closing costs. There is a dizzying array of closing costs not unlike those charged for regular mortgages. "In the greater Washington area on a $200,000 home, for example, this total may range from about $2,000 to $3,000," Scholen said. He added: "The smart thing to do is ask each lender for the total of all the third-party closing costs in writing and then compare these totals." That way you can see if a lender is charging an inflated fee for any particular item, Scholen said.

• A servicing fee. This is the fee the lender charges for sending you a bill, account statements, making any changes in your loan advances, etc. FHA limits the servicing fee to $30 per month if your loan has an annually adjustable interest rate, and to $35 if the interest rate is adjusted monthly. Again, those are the maximum fees allowed. The servicing fee can vary from lender to lender.

It's understandable that most people aren't familiar with standard fees for a reverse mortgage. To get an estimate of the fees you may be charged, try the reverse mortgage calculator at the National Reverse Mortgage Lenders Association's Web site (www.reversemortgage.org).

But don't just get mad when you see the fees. Get even by shopping around for the best deal.

Researcher Raymond Lee contributed to this column.

Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org. Readers can write to her in care of The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or send e-mail to singletarym@washpost.com.