A HECM's main costs are a 2% upfront FHA mortgage insurance premium, an origination fee capped at $6,000, normal third-party closing costs, and interest plus a 0.5% annual insurance premium that are added to your balance over time. Most upfront costs can be paid from the loan itself.
| Cost | How it works | Example on a $400,000 home |
|---|---|---|
| Upfront mortgage insurance (MIP) | 2% of the home's value, up to the $1,249,125 limit | $8,000 |
| Origination fee | Greater of $2,500 or 2% of the first $200,000 plus 1% above that, capped at $6,000. Lenders may charge less. | Up to $6,000 |
| Third-party closing costs | Appraisal, title, recording, credit report and similar | Varies by state |
| Annual mortgage insurance | 0.5% per year of the loan balance, added to the balance | About $500 a year per $100,000 owed |
| Interest | Charged only on money you've received; added to the balance | Depends on rates |
| Counseling | Often about $125 to $200; can be waived for hardship | Varies |
Why does a reverse mortgage cost more upfront?
The FHA insurance premium is what makes the loan non-recourse: it guarantees you'll receive the money you're owed under the loan, and that you or your heirs will never owe more than the home is worth. That protection costs money, which is why a HECM usually makes the most sense if you plan to stay in the home for years.
What does the loan cost over time?
Because nothing is paid monthly, interest and insurance compound on the balance. Every borrower gets a Total Annual Loan Cost (TALC) disclosure showing how costs look over different time periods. Taking money only as you need it, from a line of credit, keeps the balance lower.
How to compare offers
- Compare the interest rate margin, the origination fee and any lender credits.
- Ask for the TALC disclosure and the amortization schedule.
- Be wary of anyone who pairs a reverse mortgage with an annuity or investment.