How much does a reverse mortgage cost?
THE SHORT ANSWER
A HECM has four main costs: FHA mortgage insurance, an origination fee, regular closing costs, and interest that builds over time. Most upfront costs can be paid from the loan itself, so you don't need cash at closing. Ask for the lender's comparison of total costs before you decide.
What this means for you
You usually don't pay these out of pocket.
- Upfront costs are typically added to the loan.
- Interest isn't paid monthly; it's added to the balance.
Costs reduce equity, not your parent's monthly budget.
- Ask for the Total Annual Loan Cost disclosure to compare offers.
- Compare at least two lenders.
Upfront costs matter most over short time horizons.
- Spread over a long stay, upfront costs weigh less.
- The 2% upfront MIP is based on the home's value up to the FHA limit.
The main costs
| Cost | How it works |
|---|---|
| Upfront mortgage insurance | 2% of the home's appraised value, up to the FHA lending limit. |
| Annual mortgage insurance | 0.5% a year on the loan balance, added to the loan. |
| Origination fee | Capped by HUD: the greater of $2,500 or 2% of the first $200,000 of value plus 1% above that, with a maximum of $6,000. |
| Closing costs | Appraisal, title, recording and similar third-party fees. |
| Interest | Accrues on what you've borrowed and is added to the balance. |
Why the insurance matters
The FHA mortgage insurance is what makes the loan non-recourse: if the home is worth less than the loan when it's repaid, FHA covers the difference, not you or your heirs. It also guarantees your access to the funds you were promised.
SOURCES
- HUD Handbook 4000.1, HECM fees and charges
- Consumer Financial Protection Bureau: Reverse mortgages
Rules change. This page is general education, not advice for your situation. Talk with a licensed professional before deciding.