We get a lot of questions about the servicing set aside on HECM Mortgages. Each reverse mortgage has a servicing fee, usually $35 per month. This means that every month you have your mortgage the loan servicer earns a $35 fee, well someone has to pay this fee.
The whole idea behind having a reverse mortgage is to not make any payments. It would be pretty silly to bill a borrower every month for just $35! So they way FHA does this on HECM mortgages is to leave enough room in the loan for the $35 to be added to the balance every month to pay the servicing lender.
The way the calculation works is to add up all of the $35 charges from the time you get the reverse mortgage until age 100. But the fee doesn't get charged up front so you don't pay interest on all that at once. You only pay interest on it as it is charged every month. So the lender has to run a complex formula to figure out how much it will take to pay all of the $35 servicing fee but give you a credit back for the interest you don't pay on it.. Confusing huh? I think so, thank goodness for the computers that calculate it. This is why the amount isn't as simple as $35 times the number of months until your 100th birthday.