Reverse Mortgage Fees

A reverse mortgage is a unique lending tool that allows borrowers over 62 to borrow money from their home’s equity without making a monthly payment. 

The loan balance grows over time and doesn’t need to be repaid until the last borrowing partner dies or permanently leaves the home. It works best for retirees who need some breathing room in their budget. 

However, a reverse mortgage comes with many fees, which should give you pause when getting one. You’re right to want to know precisely what fees you’ll be paying. This article aims to help answer that question.  

Reverse mortgage fees 

Reverse mortgages are home loans where the lender doesn’t get paid for years. To compensate, they usually charge the maximum fees allowed by law and keep sufficient equity in the home so the borrower can repay the loan at some future point. 

This table breaks down the following fees you might see for a reverse mortgage:

Fee	Amount
Reverse mortgage counseling	$125 to $200
Origination fee	Up to 2% on the first $200,000 of your home’s value. 1% on amounts over $200,000, capped at $6,000.
Mortgage insurance	2% of the home’s value upfront. 0.5% of the outstanding mortgage balance each year.
Closing costs	Varies, depending on what is required. A breakdown of individual costs is included below:
Appraisal	~$450
Document preparation	Less than $200
Title insurance	Varies
Credit report	$20 – $50
Flood certification fee	Around $20 but can be much higher
Inspection fees	$100+
Recording fees	$75 – $150
Closing fee	$200+
Survey	Up to $250
Service fee	Up to $35 per month, but is often waived

These fees make reverse mortgages more expensive than other types of loans. It may be possible to increase the interest rate to decrease loan fees, but this could increase the overall costs of the loan. Here’s what to know about these different types of fees.

Reverse mortgage counseling

Borrowers must complete and pay for reverse mortgage counseling through a HUD-approved third-party housing counseling agency. 

The charge on this typically ranges between $125 and $200, but the agency may waive this fee if you can’t afford it. It’s one of the few costs that can’t be absorbed into the loan.

Origination fee

The lender charges the origination fee of 2% of the loan up to $200,000 and 1% on amounts above $200,000. The origination fee is capped at $6,000 as per federal law. 

This amount applies to home equity conversion mortgages (HECMs), which are insured by the Federal Housing Administration (FHA). Origination fees for proprietary reverse mortgages may differ based on the lender. 

Mortgage insurance

Reverse mortgage borrowers pay both an upfront and yearly mortgage insurance premium. The upfront mortgage insurance premium equals 2% of the home’s value (or FHA lending limit of $1,149,825 if the appraised value is higher).

For example, if the home is valued at $500,000, the upfront mortgage insurance is $10,000. Yet, borrowers aren’t able to take out a loan for the amount their home is appraised for, so they’re paying mortgage insurance on money they’ll never borrow. 

Closing costs

Closing costs are expenses paid to third parties. Typically, the lender requires it to close the loan, such as an appraisal, survey, flood certification fee, title fees, recording fees, etc. These will vary by property and lender, from $0 to thousands. 

In total, because the amount you’ll pay is based on a percentage of the loan amount, you’ll pay more for a reverse mortgage for a larger loan. For example, a reverse mortgage calculator estimates $17,000 in closing costs for a $500,000 mortgage and $32,000 for a $1 million reverse mortgage. 

How do you pay reverse mortgage fees?

Most reverse mortgage fees are rolled into the loan, meaning you can finance most loan costs. These fees become part of the loan balance, which grows over time as money is disbursed to you.  

The plus side is you may not need to come up with cash at closing when you finance your loan costs. The downside is you’ll pay financing costs on top of all the fees to get a reverse mortgage. 

Because your fees are included in the loan balance, they won’t be repaid until you die or permanently leave the home. This also means you’ll pay interest on them until then, which can become very costly.   

It is possible to pay these fees at closing, which can also increase the amount you can borrow since they don’t become part of the loan. Fees not typically financed include the cost of the required counseling session. 

Repayment example

Let’s say you get a reverse mortgage on your $500,000 home. Your estimated reverse mortgage closing costs are around $17,000. Interest rates are around 8.25% as of March 2024. 

Your loan balance starts at $17,000, and you’re charged 8.25% of that amount each year in interest. This totals $1,402.50 in interest each year, which compounds as the years go by. The next year, you’ll pay interest on $18,402.50, which is $1,518.20. The next year, you’ll owe interest on $19,920.71, another $1,643.45. 

Note that this example is based on fixed rates; some reverse mortgages have variable rates. This amount also doesn’t include the payments you receive each month or the interest charged. That’s just the interest charged for the fees on the reverse mortgage. 

Put another way:

Year	Principal	Interest	Total
1	$17,000	$1,402.50	$18,402.50
2	$18,402.50	$1,518.21	$19,920.71
3	$19,920.71	$1,643.45	$21,564.15

After three years, the loan surpasses $21,000 just to pay interest on the fees rolled into the loan. 

Taking out a reverse mortgage is not a decision to be taken lightly—the fees can add up. After you decide this is the best decision for you, compare interest rates and fees of various lenders. Shopping around can help reduce your total cost.

Chloe Moore

CFP®

How do reverse mortgage fees compare to other loan products?

Reverse mortgage fees are often higher compared to other loan products. For example, with a home equity loan or a HELOC, it’s possible to get a loan with low or no closing costs. That’s much less expensive than the thousands you’ll pay for a reverse mortgage. 

Compared with a traditional mortgage, a reverse mortgage can be more expensive because of some large upfront fees. The required mortgage insurance and origination fees are often much higher. A reverse mortgage requires 2% of the appraised amount upfront. That amount can be reduced on a traditional mortgage if you put more money down.

A reverse mortgage can also have a 2% origination fee. You’re already paying 4% to the lender between these two fees. And this is 4% of the home’s value, not 4% of the money you can borrow.  

The lender doesn’t get paid for years and may charge compensation fees. Because fees vary greatly from lender to lender, it’s important to shop around for a reverse mortgage and find the best deal. It can save you more money than you realize. 

Ask the expert

Chloe Moore

CFP®

A good candidate for a reverse mortgage typically owns their home outright or has significant equity, needs a steady income to cover living expenses in retirement, and does not intend to leave their home to their heirs. If you want to leave your home to heirs, consider alternatives, such as refinancing, a home equity loan, or a home equity line of credit. If you need help walking through the pros and cons of a reverse mortgage and which approach is best for your situation, I recommend speaking with a qualified financial advisor.