Reverse Mortgage Costs and Fees
A reverse mortgage has costs when you open the loan and charges that continue afterward. Some can be added to the loan instead of paid in cash. That changes when you pay them, not whether you pay them.
This guide focuses on the Home Equity Conversion Mortgage (HECM), the FHA-insured reverse mortgage. Private reverse mortgages can have different terms. HUD’s HECM overview explains the program.
Before looking at quotes, write down what you need the money for and roughly when you expect to use it. Paying for one repair is a different question from covering a regular gap in your retirement budget.
What you pay at closing
A HECM quote may include a lender’s origination fee, appraisal and other third-party closing costs, and an upfront FHA mortgage insurance premium. Counseling can also carry a fee. Ask the counseling agency about the charge and help available if you cannot afford it.
If closing costs come out of the loan, less money is left for you to use. The CFPB’s cost guide explains these charges.
Ask for a written breakdown with three separate totals: cash needed from you, costs financed into the loan, and money available after closing. Have the lender show an existing mortgage payoff separately, too. Otherwise, a large “available” figure can be easy to misunderstand.
Do not rely on a headline promising low or no closing costs. Ask which charges it covers, which remain, and whether the offer changes the interest rate.
How your loan balance grows
Money you borrow, financed fees, interest, and applicable ongoing charges add to the amount owed. When interest is added to an unpaid balance, later interest can be charged on that larger amount. HECM costs can include ongoing mortgage insurance and servicing charges. See the CFPB’s explanation of ongoing costs.
Property taxes, homeowners insurance, and upkeep still need a place in your household budget. They do not disappear because a HECM has no required monthly principal-and-interest payment.
Ask the lender to walk through a sample statement with you. Which figures show money you received? Which show charges? Where would you see money reserved for property expenses? You should be able to follow the explanation without guessing.
Compare quotes over the same time period
A lower opening fee does not answer the whole cost question. Request illustrations for the same amount borrowed, the same withdrawal schedule, and the same number of years. Ask what changes if you move sooner than expected.
The FTC recommends reviewing Total Annual Loan Cost (TALC) disclosures, which show projected annual average costs under stated assumptions. These projections are a comparison tool, not a promise about your future balance. FTC guidance on shopping for a reverse mortgage.
On a sheet of paper, put each lender’s answers beside these labels:
- Money I can actually use
- Money I must bring to closing
- Charges added to the loan
- Interest rate and whether it can change
- Projected balance at the same future dates
- Costs and paperwork if I repay early
Ask about any blank entry. If the explanations do not line up, a HUD-approved counselor can help you work through the differences.
Questions to ask before you borrow
Would a smaller loan meet the need? What if you decide to move near family? How much room does your budget leave for an insurance increase or a home repair?
Bring those questions, the written quotes, and your household budget to counseling. For HECM counselor information, use HUD’s counselor resources. A conversation on this website does not replace required counseling or advice about your own finances.
Next, compare a reverse mortgage with a HELOC or home equity loan, or read when a reverse mortgage may not fit.