Costs and fees
How much does a reverse mortgage cost?
Closing costs are not cheap, but most of them can be rolled into the loan — which means little or nothing out of pocket at closing.
Most HECM loans allow you to roll the costs into the loan, so you do not have to pay out of pocket at closing. Doing that does reduce the funds available to you, so it is a trade-off worth understanding rather than defaulting to.
The breakdown
- Mortgage insurance premiums (MIP). A 2 percent initial premium at closing, plus an annual premium equal to 0.5 percent of the outstanding loan balance. The MIP can be financed into the loan.
- Origination fee. Lenders may charge the greater of $2,500 or 2 percent of the first $200,000 of your home’s value, plus 1 percent of the amount above $200,000. The fee is capped at $6,000.
- Servicing fees. A monthly fee to maintain and monitor the loan for its life. It cannot exceed $30 for fixed-rate or annually adjusting loans, or $35 if the rate adjusts monthly.
- Third-party fees. Appraisal, home inspection, credit check, title search, title insurance and recording fees, charged by the parties who perform them.
- Counseling. Typically around $125, usually paid in advance, and sometimes waived depending on available funding.
Keep in mind that reverse mortgage interest rates tend to run higher, which adds to the lifetime cost. Rates vary by lender and by your situation.
Why the fees exist
It is worth understanding rather than just accepting. A reverse mortgage usually starts with a relatively small loan balance, which generates very little interest in the early years. Lenders cannot absorb thousands of dollars in closing costs against that, so the costs are passed to the borrower and typically rolled into the loan.
There are situations where the lender can cover all or part of your closing costs — most commonly when you are using the reverse mortgage to pay off a large existing mortgage, because the larger starting balance generates enough interest to justify a lender credit. Ask us whether your situation qualifies. It is not a rare outcome.
For a full accounting of what you would pay in your specific case, call us. Rates and limits change, and a written comparison beats a general figure on a web page.