Reverse Mortgage Costs and Fees

Reverse Mortgage Costs and Fees

It’s not rare that mortgage agents get asked about the underlying “hidden” costs of a reverse mortgage and if there are any for that matter.  

It’s something I talk about a lot in my free reverse mortgage guide which you can download here.

This is mainly because reverse mortgages can sound too good to be true at times. Considering how many financial products that carry massive hidden costs and fees with them are out there, it’s understandable, even healthy for a person to approach it with a dose of skepticism.  

That’s why today I wanted to answer some of your questions and clear out some misconceptions about the costs involved in setting up your reverse mortgage.  

That is, the initial, basic costs you will be met with before you do anything else. I will cover all the initial costs you need to be aware of so you can take them into consideration when making a financial decision.  

First and foremost, you should divide reverse mortgage costs into two types: those that need to be paid by you upfront and those that are deducted from the amount you borrow. Do note that you pay the first type of costs, but the second ones aren’t actually paid by you. 

Costs Paid By You Upfront 

Out of pocket costs range between $150 and $400  

When I say “out of pocket”, I mean that there is no other way of paying these costs than upfront. Out of pocket is a phrase used to explain the obvious types of costs – those that you pay for by taking cash out of your pocket and paying it to the receiver.  

So, what exactly is included in these out of pocket costs?  

The good news here is that there are no costs (plural) involved, it’s just one cost: the appraisal.  

Depending on where exactly you live in Canada, your appraisal costs will range between $150 and $400, as we mentioned above. However, expect to pay something near the $300 range in most counties.  

Why is an appraisal mandatory? 

To understand the importance of an appraisal, you first need to put yourself in the lender’s shoes. They aren’t receiving payments from you at all. They are lending the money to you based on the estimated higher value of your house in the future, a value they’d like a share of. As such, lenders want to make sure that your property is worth investing in and would bring them a cash return.  

All of the alternatives to a reverse mortgage will also require an appraisal.

Because of this, an appraisal is required. When a professional comes to appraise your property, they will be looking for three things:  

  • What is the current market value of your property? 
  • Are there any underlying problems with the property that may impede its value now or in the future?  
  • How marketable is the property? Meaning, how easy or difficult it would be to sell if there is a need to do so in the future?  

As with everything, there are two sides to this – a good one and a bad one.  

The good aspect is that this is the only upfront cost you are required to pay yourself, which can be done by either a credit card or cash. 

The bad side though is that you have to pay the appraisal costs even if you don’t take out the mortgage later on. And there are no refunds on the appraisal costs.  

If you already paid for an appraisal but don’t want to pursue this, I would suggest using the appraisal to secure a “regular” mortgage or Home Equity Line Of Credit. In most cases, one of these will require an appraisal anyway, especially if you’re refinancing, so you can use the appraisal to “save” on costs.  

Mandatory Costs You Have To Pay 

Later Deducted From The Borrowed Amount 

Contrary to the previous, out of pocket costs, these mandator costs can be deducted from the borrowed amount you will receive. 

To simplify this, let’s say you arrange a reverse mortgage for $150,000 and the mandatory costs are $2,000. This means that you won’t receive the full $150,000, but the lesser amount with the mandatory costs deducted, or $148,000. 

You have the option of paying for them yourself, but if you ask, most people will tell you to deduct them from the borrowed amount.  

The mandatory costs are actually legal costs. They can be split into two types: 

Independent legal advice costs that range between $450 and $700  

The legal fees come from two aspects:  

  • Fees to legally register the mortgage on the property title (we will go more in details about this in part b)  
  • The fee you pay for legal advice that will ensure an independent legal expert will advise you before you sign anything 

Appraisal costs throughout Canada depend on the lawyer you work with, but usually range anywhere between $400 and $700, with most of them being around $600.  

Remember that you don’t pay these costs directly, but they are deducted from the amount you borrow.  

Legal, administrative and costs for setting up your reverse mortgage – $1,795 

These costs are actually the legal costs you pay to register the mortgage on your property title. They usually involve payments to other lenders, administrative, and other fees. It was lower but was increased to $1,795 in March 2018.  

Every mortgage in Canada has a cost similar to this as it’s an unavoidable cost that is part of the Canadian mortgage laws.  

Regardless if you’re paying for a regular mortgage, reverse mortgage, or getting a Home Equity Line of Credit, you have to pay a lawyer to register the mortgage on the property title. This rule applies to any type of mortgage you have and want to register.  

Many forget that when they bought their first home they incurred these costs to include a mortgage lawyer in the process. Because a reverse mortgage is a mortgage, after all, a lawyer has to be hired to register the mortgage on title.  

Similar to the independent legal advice costs, you don’t have to pay for these costs up front as they will also be deducted from the amount you will receive.  

Summary Of Reverse Mortgage Costs and Fees 

I will list all costs related to reverse mortgages in Canada. However, please note that the exact amount of costs may vary depending on your area where you’re living, the lawyer you’ve chosen, and the time from when this article was written (these are the current reverse mortgage costs).  

Here is a summarization of the costs related to Reverse Mortgage in Canada: 

Upfront costs (must be paid by cash or credit card):  

  • Appraisal $150 – $400, usually $300 

Costs deducted from the loan amount:

  • Independent legal advice $450 – $700, usually $600  
  • Title registration and administrative fees $1,795 

To sum everything up, the total out of pocket costs are $150 to $400, while the maximum costs can be anywhere between $2,395 – $2,895. 

Interest Rates 

Of course, there are interest rates you need to take into consideration along with the other reverse mortgage costs. You don’t actually pay these, but make sure to add them to your calculation.  

You’ll find more information about this on our reverse mortgage rates and penalties page.

Free Reverse Mortgage Evaluation

I hope you enjoyed this article. If you’d like a free reverse mortgage evaluation, I’d be happy to help you.

With over 20 years experience in mortgages, I can look at your situation and advise you if this is a good fit – or if one of the thousands of other mortgage products I have through the 15+ lenders I work with might be better.

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