The costs associated with a reverse mortgage can be broken down into two types: upfront costs and costs over time. The costs listed below are for HECM reverse mortgages insured by the FHA. Keep in mind that some lenders offer proprietary reverse mortgages that are not insured by the FHA, and may have different costs.
Lenders may charge various fees at the start of a loan. These upfront costs may include:
Lenders and mortgage brokers may charge up to $6,000 for originating the HECM reverse mortgage loan. Homes under $400,000 will have an origination fee between $2,500 and $6,000. Homes more than $400,000 will have the maximum origination fee of $6,000.
Mortgage insurance premium
This is a one-time, nonrefundable charge that ranges between 0.5% – 2.5% of the appraised value of the home, depending on how much you borrow.
Also called real estate settlement costs, these costs include the appraisal, title insurance, and inspection fees.
Reverse mortgage counseling
A reverse mortgage counselor will educate you on alternatives and provide you with information about your costs and options. The cost is usually about $125, (paid to the agency, not the lender). However, financial aid may be available to low-income individuals.
LendingTree Pro Tip. The upfront costs associated with a reverse mortgage have no limit, so get quotes from multiple lenders and compare fees.
Costs Over Time
Costs over time include interest and mortgage insurance premiums. Interest may be fixed or adjustable. Over the last few years, fixed interest rates for reverse mortgages have hovered below 5%, while the adjustable rate has steadily increased. Taking out a loan with a lower interest rate is to your benefit, so be sure to compare quotes from several lenders. Keep in mind that mortgage insurance will add an additional 1.25% on top of the interest rate.
LendingTree Pro Tip. Borrow less than 60% of your initial principal limit to qualify for a lower mortgage insurance rate.