What is a Reverse Mortgage Service Set-Aside?

All Reverse Mortgages have a monthly service fee charged to the borrower. The fee varies in cost between $35.00 and $20.00 depending on the Reverse Mortgage being originated.

The Home Equity Conversion Mortgage (HECM) sets a certain amount of money aside at closing to pay for the anticipated future monthly service fee. This is known as the Service Set-Aside.

This is not a cost to the borrower until the fee is charged at a future date. The unused portion of the Service Set-Aside will be returned to the borrower when the loan is repaid.

The Service Set-Aside equals the Present Value of the anticipated future stream of monthly service fees to be earned by the lender.

Example: A borrower is age 62, and and will have a reverse mortgage for 38 years or 456 months,(reverse mortgage calculations always assume the borrower will live to be 100) The interest rate used for the present value calculation is 6.72% the same rate as charged on the reverse mortgage. The service fee is $35.00 dollars monthly.

Using a financial calculator enter 456 as number of payments , .0672 as the i% and 35 as the payment. Then hit the PV key to get your present value. This will equal the Service Set-Aside amount; in this case $5760.00.

Eben Johnson Reverse Mortgage Specialist.
www.mireverse.com