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Understanding Reverse Mortgage Fees

Understanding the fees associated with a reverse mortgage is a critical part of making an informed decision. Review this clear overview of common costs to help navigate the process with confidence.

Closing Costs

The three largest closing costs are:

• Federal Housing Administration (FHA) mortgage insurance
• Origination fee
• Title and other closing settlement fees

Typically, the only out-of-pocket cost is the HUD counseling fee.

FHA Upfront Mortgage Insurance Premium (UFMIP)

As part of FHA insurance requirements, borrowers are charged an upfront mortgage insurance premium (UFMIP) at closing. Over the life of the loan, an annual Mortgage Insurance Premium (MIP) is also charged on the loan balance.

FHA insurance provides the following guarantees:

• If you or your heirs sell your home to repay the loan, your total debt will never exceed the home’s value
• You will continue to receive your HECM proceeds, based on the selected program plan, even if your lender experiences financial difficulties

Origination Fee

The origination fee is what the reverse mortgage lender earns on the loan. HUD uses the following formula to determine the allowable charge:

• 2% of the first $200,000 of the property’s value
• 1% of the amount over $200,000
• Maximum fee: $6,000

Title and Closing Settlement Fees

Title fees confirm the homeowner’s legal ownership of the property. These fees apply to all mortgages—reverse or conventional. The largest component is title insurance. Title and settlement fees typically include:

• Title insurance (varies by state and property value)
• Title settlement
• Title search/exam
• Recording
• Delivery/courier
• Payoff (if an existing mortgage is being paid off)
• Notary
• Document preparation

Appraisal

The appraisal determines the legal value of the home. A reverse mortgage appraisal is conducted by an independent HUD-approved appraiser and follows specific HUD guidelines, which require more detailed documentation than a standard appraisal.

Other Closing Costs

Additional fees may include:

• Counseling fee
• Wire fee
• Flood certification fee
• Credit report fee

Interest

A reverse mortgage accrues interest similarly to a traditional mortgage. However, the homeowner does not make monthly payments toward principal or interest. As a result, the loan balance increases over time until the loan becomes due—typically when the homeowner permanently moves out or passes away.

Interest Rate and Mortgage Insurance

In recent years, reverse mortgage interest rates have ranged between 3% and 6%. The true interest rate is typically 0.5% higher than the quoted rate due to the inclusion of the annual FHA Mortgage Insurance Premium (MIP).

Example:
If the quoted rate is 4.51%, the total rate including MIP would be 5.01%.

Footnote

¹ The Upfront Mortgage Insurance Premium (UFMIP) is based on a percentage of the Maximum Claim Amount (MCA). The MCA is determined by the lesser of your home’s appraised value, the current FHA maximum lending limit, or the purchase price (if buying a new home).