A reverse mortgage carries several layers of fees that can add up to tens of thousands of dollars before you receive a single payment. The largest upfront cost is typically the mortgage insurance premium, set at 2% of your home’s appraised value. Beyond that, you’ll pay an origination fee, third-party closing costs, a required counseling fee, and ongoing insurance charges that accrue for the life of the loan. Here’s what each fee looks like in practice.
Upfront Mortgage Insurance Premium
Nearly all reverse mortgages issued in the U.S. are Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration. That insurance protects the lender and guarantees you’ll keep receiving payments even if the lender goes out of business, but it comes at a steep price. The upfront mortgage insurance premium (MIP) equals 2% of either your home’s appraised value or the FHA lending limit, whichever is lower.
On a home appraised at $400,000, that means an $8,000 charge at closing. On a $600,000 home, you’d pay $12,000. This fee is typically rolled into the loan balance rather than paid out of pocket, which means it starts accruing interest immediately. Over a long loan term, that compounding can significantly increase the total cost.
Origination Fee
The origination fee is what your lender charges for processing the loan. FHA caps this fee using a tiered formula: the lender can charge the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount above $200,000. The absolute cap is $6,000, regardless of how much your home is worth.
To see how this works in dollar terms: if your home is appraised at $150,000, the 2% calculation would be $3,000, but the minimum is $2,500, so you’d pay $3,000. For a $400,000 home, the math is 2% of $200,000 ($4,000) plus 1% of $200,000 ($2,000), totaling $6,000, which also hits the cap. A homeowner with a $900,000 property would still pay $6,000 because the cap applies. Like the insurance premium, this fee can be financed into the loan balance.
HUD Counseling Fee
Before you can apply for a HECM, you’re required to complete a counseling session with a HUD-approved housing counselor. The session covers how the loan works, what alternatives exist, and how the fees and repayment terms will affect your finances. HUD recommends a fee of $125 for this session, though each approved agency sets its own price. Some agencies charge less than $125, and some waive the fee entirely for borrowers who can’t afford it. You can find a HUD-approved counselor through HUD’s website or by calling the agency directly.
Third-Party Closing Costs
Like any mortgage, a HECM involves a set of closing costs paid to outside service providers. These include the home appraisal (required by FHA to determine your property’s value and confirm it meets minimum standards), a title search and title insurance, recording fees charged by your county, a credit check, and potentially surveys or inspections. You may also owe mortgage taxes depending on where you live.
The total for these third-party costs varies widely based on your location and property, but expect to pay somewhere between $2,000 and $5,000 in most cases. The appraisal alone typically runs several hundred dollars. These costs can also be financed into the loan, though doing so increases your balance and reduces the equity you retain.
Ongoing Mortgage Insurance Premium
The upfront MIP isn’t the only insurance charge. FHA also collects an annual mortgage insurance premium equal to 0.5% of your outstanding loan balance each year. This is calculated monthly and added to what you owe, so it compounds over time alongside the interest on your loan.
Early in the loan, this ongoing MIP might be relatively modest. On a $100,000 balance, it adds roughly $500 per year, or about $42 per month. But as your balance grows (from accruing interest, the MIP itself, and any additional draws you take), the annual charge grows with it. Over 10 or 15 years, the cumulative cost of ongoing MIP can rival the upfront premium.
Interest and Servicing Charges
Interest isn’t technically a “fee,” but it’s the single biggest cost of a reverse mortgage over time because it compounds on a balance that only grows. HECM interest rates can be fixed or adjustable. Fixed-rate HECMs require you to take the full amount as a lump sum at closing. Adjustable-rate options let you draw funds over time through a line of credit or monthly payments, and the rate adjusts periodically based on a benchmark index plus a margin set by the lender.
Some lenders also charge a monthly servicing fee for managing the loan, sending statements, and ensuring tax and insurance obligations are met. FHA limits this servicing fee to $30 per month for loans with annually adjusting rates and $35 per month for monthly adjusting rates. Not all lenders charge a separate servicing fee, so it’s worth comparing offers.
What the Total Looks Like
To put all these pieces together, consider a homeowner with a property appraised at $350,000. The upfront costs alone would look something like this:
- Upfront MIP (2%): $7,000
- Origination fee: $5,500 (2% of $200,000 plus 1% of $150,000)
- Counseling: $125
- Third-party closing costs: $2,000 to $5,000
That puts day-one costs in the range of $14,625 to $17,625. If those costs are rolled into the loan, they immediately begin accruing interest and ongoing MIP charges, meaning the true lifetime cost will be significantly higher. Over a decade or more, interest and ongoing MIP can easily double the effective cost of the loan.
Because most fees can be financed, a reverse mortgage can feel “free” at closing since you rarely write a check. But every dollar financed reduces your home equity and increases the balance your heirs or estate will need to repay when the loan comes due. Requesting a Total Annual Loan Cost (TALC) disclosure from your lender gives you a projection of all costs expressed as an annual rate, which makes it easier to compare offers side by side.