A reverse mortgage has high up front costs. These costs are almost always financed into the loan, the exceptions being the fees for your appraisal and your counseling session. Below, we’ve broken down the major costs that you can expect to incur.
Please note that we do not discussing ongoing costs, which are mainly interest on your loan. In the past, there was a monthly charge for servicing, but as of this writing that is not very common.
As part of the HECM program, the FHA mandates that anyone taking out a reverse mortgage pay a mortgage insurance premium. Borrowers pay 2% of the property’s value or the maximum loan limit, whichever is lower, upfront. As of this writing, the limit is $625,000. Each year, the borrower must pay 1.25% of the loan balance.
Title, Appraisal, and Other Upfront Fees
These fees include title insurance, a credit report, an appraisal, closing costs and so on. As of 2012, these fees ranged from $2500 to $4500, depending on home value. You can find our source here.
The Origination Fee
This fee is what you will pay to your lender for originating your reverse mortgage. For HECM loans, which the vast majority of reverse mortgages are, these fees are set by the FHA and are based on home value. You will pay 2% for the first $200,000 that your home is worth, and 1% of the remaining value. The maximum fee is capped at $6000.