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

Your Age and Reverse Mortgage Proceeds

The proceeds of a Reverse Mortgage are positively correlated with the age of the borrower. Borrowers aged 62 (lowest allowed) are eligible to receive a smaller net principal limit than a borrower aged 95.

The younger a borrower is the longer the reverse mortgage lender will have to wait for the loan to be repaid. Since the loan interest is generally paid from the equity in the home at death of the borrower, the amount of equity at the beginning of the reverse mortgage must pay for the projected interest and principal borrowed.

Eben Johnson Reverse Mortgage Specialist
www.mireverse.com