The True Costs and Fees of a Reverse Mortgage

A reverse mortgage is a type of home loan that enables homeowners aged 62 or older to turn the equity in their homes into cash.

It’s the “reverse” of how you would ordinarily make payments to your lender under a traditional mortgage. That means your lender will make payments to you rather than you making payments to your lender.

However, while your lender will pay you when you get a reverse mortgage, there are still fees you’ll have to pay. Below you’ll get an overview of what these fees are and the average costs you can expect to pay for them.

The True Costs And Fees Of A Reverse Mortgage

The fees are usually related to the cost of the services a lender provides during the process of getting a reverse mortgage. 

Many of these services exist for the protection of you – the borrower. A good number of these charges are subject to caps or regulations imposed by the federal government.

Let’s take a look at the common fees you’ll encounter…

Origination Fees

The origination fee is used to cover the expenses a lender has that are related to the origination of your reverse mortgage. In most cases, the lender is compensated for processing a Home Equity Conversion Mortgage (HECM).

The total origination charge for HECMs cannot exceed $6,000.

Appraisal Fees

Your home will be given a value, which will play a significant role in deciding the amount of your reverse mortgage.

The cost of performing an appraisal can differ from one state to the next. But it’s usually around $450 to $550 on average. 

These costs are going up in most parts of the country because there is a shortage of appraisers. So the fees tend to be far more than they were in the past.

Interest Rates

The current interest rates are yet another factor that will affect the charges that the borrower must bear. When it comes to interest rates, borrowers can choose either a fixed or variable rate.

Closing Cost Fees

There are several things a mortgage company has to do to finalize your reverse mortgage. These things aren’t free and are typically included in closing costs. 

Examples include running your credit report, title search, document prep, notary, etc. 

Your out-of-pocket costs can be reduced by rolling these charges into the total amount of the loan you receive from the reverse mortgage.

Service Fees

The service charge covers the estimated cost of servicing your account for the loan duration. The FHA caps this monthly cost at $35, and AAG often waives the cost.

HECM Counseling Fees

The required reverse mortgage counseling session with a HUD-approved agency normally costs $125. Although reverse mortgage regulations require counseling, the price may be waived in certain instances.

Mortgage Insurance

Like a standard FHA loan, you will pay an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP) with a HECM.

Typically, the UFMIP is 2% of the home’s value and is rolled into the loan amount. The annual MIP fee is equal to 0.5% of your loan balance. The MIP amount will increase proportionally to the loan balance.