Reverse mortgage costs
Each cost on a HECM reverse mortgage comes with the rule that sets it: mortgage insurance charged upfront and each year, an origination fee with a cap, and interest, plus third-party closing costs.
- Upfront mortgage insurance equals 2% of the maximum claim amount
- Yearly mortgage insurance equals 0.5% of the balance
- Most a lender can charge for origination: $6,000
- Least a lender can charge for origination: $2,500
Reverse mortgage costs include upfront FHA mortgage insurance of 2% of the home's value, subject to the $1,249,125 limit. Other expenses include third-party closing costs and an origination charge capped at $6,000. Interest and annual mortgage insurance of 0.5% continue throughout the loan term.
Most costs come from the loan itself rather than your pocket. It is easy to overlook these charges, although you will pay interest on them over the years.
Every HECM cost on one worksheet
With the calculator's default settings, a reverse mortgage on a $450,000 home has these upfront costs:
| Cost | Rule | Amount |
|---|---|---|
| Upfront mortgage insurance | 2% of the maximum claim amount | $9,000 |
| Origination fee | Use 2% for the first $200,000 and 1% for anything above it. The result cannot be less than $2,500 and is capped. | $6,000 |
| Other closing costs | Providers set appraisal, title, recording and similar charges. | $3,500 |
| Total upfront | The three lines above added together | $18,500 |
Other closing costs start at $3,500 in the calculator, but that figure is not a quote. Once you have a lender's written estimate, change the amount under More settings on the calculator.
MIP on a reverse mortgage
FHA splits mortgage insurance into two parts. The change that created current rates set 2% of the maximum claim amount for the first premium and 0.5% for the annual premium.
- Upfront MIP. The upfront premium equals the lower of 2% of the home's value and the limit. It is $6,000 for a $300,000 home, $9,000 for a $450,000 home and $24,983 for a home worth at least $1,249,125.
- Yearly MIP. Each month, 0.5% of the amount owed is added to the loan balance. The CFPB explains that it equals 0.5% of the unpaid mortgage balance.
Your draw amount does not affect the upfront premium. The Congressional Research Service says that before the October 2017 changes, the premium was 0.5% or 2.50%, based on your first-year draw.
The origination fee
A federal cap limits the lender's own fee. Under 24 CFR 206.31, the fee equals whichever amount is higher: $2,500 or 2% applied to the first $200,000 within the maximum claim amount. For any part above $200,000, the calculation also adds 1%. The fee never rises past $6,000.
| Home value | Origination fee |
|---|---|
| $100,000 | $2,500 |
| $200,000 | $4,000 |
| $300,000 | $5,000 |
| $350,000 | $5,500 |
| $400,000 and up | $6,000 |
Lenders may charge no more than these amounts. Many lenders charge less, while some waive the fee in return for a higher margin. Ask for each version and compare the amount left after costs.
Reverse mortgage closing costs
Third-party closing costs pay the people who process the loan rather than the lender. Common charges include:
- FHA property appraisal
- a title search plus title insurance
- the escrow or settlement fee
- Fees for recording, plus any state or local mortgage taxes
- Survey, pest or other inspection when needed
- Counseling session, which the FTC reports often costs around $125
The charges differ by state and home. Ask your lender to show every one in the written cost estimate.
Ongoing reverse mortgage fees
Once the loan closes, these three charges increase your balance every month:
- Interest applies at the note rate.
- Yearly mortgage insurance is 0.5% of the balance.
- The lender may also charge a servicing fee.
These charges are not paid monthly, but they compound over time. This makes the balance grow. The note rate is set according to the method shown in the HECM rates guide.
You continue to cover the home's bills, including property taxes and homeowners insurance. Any HOA dues and repairs also remain your responsibility. They are not loan fees, but failure to pay them can make the loan due.
How costs change what you receive
The principal limit falls by the amount of the costs. For a home worth $450,000 owned by someone who is 70, the principal limit is $173,700. Costs leave $155,200. When other closing costs rise from $3,500 to $6,000, the remaining amount drops to $152,700.
The first-year limit also includes costs. Because payoffs and Upfront costs are mandatory obligations, a large mortgage payoff can leave little money to draw in year one.
Ways to cut reverse mortgage costs
- On one day, collect offers from at least two lenders.
- Review the origination fee and margin together, not separately.
- Ask the lender which closing costs it will credit.
- Take only the amount you need. You owe interest and yearly MIP only on the balance.
- Show a counselor each lender's written estimate so they can review it line by line.
Questions people ask
What hidden costs does a reverse mortgage have?
Each month, interest and yearly mortgage insurance are added to the balance. Since no bills are sent, many borrowers first notice them on a statement.
What are average closing costs for a reverse mortgage?
Upfront mortgage insurance charges and the origination fee follow fixed rules. This makes both easy to work out. These costs total $15,000 on a $450,000 home. Third-party costs vary by state and are added to that amount.
What does MIP mean for the statement on a reverse mortgage?
This refers to the FHA mortgage insurance premium. Your statement lists the 0.5% yearly charge that is added to your balance each month.
What is the annual MIP for a reverse mortgage?
The annual rate is 0.5% of the outstanding loan balance, charged monthly and added to your balance.
What kind of reverse mortgage costs the least to close?
Single-purpose loans from nonprofits, state agencies or local agencies usually cost the least. Among HECMs, origination fees and third-party charges account for most of the cost differences.