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Here is a rundown on the closing costs and fees you can expect if you take out a "reverse mortgage" to generate some cash flow from the equity in your house:

Looks like everything you'd expect to pay on a purchase money mortgage and then some. Hopefully, competition will cut these costs down a bit in a couple of years when I'll be eligible for a "reverse mortgage".

Under a reverse mortgage, you can elect to take a lump sum (probably no more than 50% of the home's value if you're only 62--then the LTV ratio slowly ratchets up to about 75% at age 90) or you can elect monthly payments. Since my home is paid for and I expect to stay in it for the foreseeable future, what I'm interested in is recapturing enough $$cash out of it to pay my property taxes and insurance costs. And that's about all you will get, looking at the numbers. The advantage is that you never have to pay the money back until you die, sell the home, or don't occupy it for 12 consecutive months. My question pertains to how the interest is calculated, if you take the monthly stipend. It will be an ARM, of course, so you can't predict the rate, but the payback obligation is capped at the value of the property, so neither you nor your estate will ever have to fork over cash--unless I'm missing something. Here's the question, put in terms of a hypothetical:

< Let's assume I get a $60K Reverse Mortgage on a $100K property and my monthly stipend from it is $300.00. If I live ten years then expire, having collected $300/month for ten years, the bank will be entitled to payback of the $36,000.00 cash it paid out to me plus what? (a) ten years' interest on $60,000? (b) ten years' interest on $36,000? or (c) ten years' interest on $3600, plus nine years' interest on $7200, plus eight years interest on $10,800, and so on (adjusting the calculation for monthly compounding)? If not (a), (b) or (c), how is the lender's interest calculated? And if I roll the closing costs and fees into the deal at origination, I assume that is added to the payback amount, with interest? Plus the monthly service fees, with interest?>


/s/ S.T.
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