Costs · 6 min read
The Real Costs: Fees, Insurance, and Interest
Reverse mortgages aren't free, but the costs are built into the loan — not paid out of pocket. Here's an honest breakdown of every fee involved.
The costs, upfront
Like any mortgage, a reverse mortgage comes with closing costs. The difference: most of these are financed into the loan, so you pay nothing out of pocket at closing.
Origination fee
Charged by the lender for processing the loan. It's capped by HUD based on your home's value.
Upfront mortgage insurance premium (MIP)
A one-time charge equal to 2% of the home's value (up to the FHA limit), paid to the FHA. This insurance is what lets the loan be non-recourse: if the balance grows larger than the home's value, you or your heirs generally won't have to pay the difference.
Closing costs
Title insurance, appraisal, recording fees, and other standard closing expenses — similar to a traditional mortgage.
The ongoing costs
Ongoing mortgage insurance
An annual charge of 0.5% of the loan balance, added to the loan over time.
Interest
Interest accrues on the outstanding balance — just like any loan. The rate can be fixed or adjustable, and it compounds over time.
Servicing fee
A fee some lenders charge for administering the loan, such as sending statements and distributing loan proceeds. Ask your lender whether it applies and how much it is.
What this means for your equity
Because costs and interest are added to the loan balance over time, your equity decreases as the loan grows. This is the trade-off for accessing cash now without monthly payments.
The honest summary
Reverse mortgages cost more than traditional mortgages — but they're not designed for short-term use. For homeowners who plan to stay in their home long-term and value the cash flow, the costs can be well worth it. A licensed advisor can show you the exact numbers for your situation.