Four upfront charges, one of them much bigger than the rest, and an ongoing cost that grows every month. Here is each one in dollars, at four home values.
A reverse mortgage has four kinds of upfront cost: FHA mortgage insurance (2% of the home’s value, up to the FHA limit), an origination fee that HUD caps, the usual third-party closing costs (appraisal, title, recording and so on), and a counseling fee. Most of it can be paid out of the loan itself, so little comes out of your pocket, but it all adds to the balance and grows with it. After closing, the balance grows each year by the interest rate plus 0.5% annual mortgage insurance.
| Home value | Upfront FHA mortgage insurance (2%) | Origination fee (HUD cap) | Other closing costs (est.) | Counseling (est.) | Total upfront |
|---|---|---|---|---|---|
| $250,000 | $5,000 | $4,500 | $3,000 | $125 | $12,600 |
| $400,000 | $8,000 | $6,000 | $3,000 | $125 | $17,100 |
| $800,000 | $16,000 | $6,000 | $3,000 | $125 | $25,100 |
| $1,500,000 | $24,982 | $6,000 | $3,000 | $125 | $34,100 |
Assumptions: principal limit from HUD’s official table at a 7.68% expected rate; balance and unused credit line grow 7.5% a year (7.0% interest + 0.5% annual mortgage insurance); upfront costs = 2% FHA mortgage insurance + the HUD-capped origination fee + about $3,000 of other closing costs. Illustrations, not quotes. Your lender’s rate and a HUD counselor give exact figures.
The FHA insurance is the biggest piece, and the gap widens with home value: it scales with the home’s value up to the $1,249,125 limit. On a $400,000 home the upfront total comes to roughly $17,100, which is why a reverse mortgage rarely makes sense if you might move within a few years.
You make no monthly payment, so the interest and the 0.5% annual mortgage insurance are added to what you owe and compound (shown here a year at a time; monthly compounding adds a little more). On every $100,000 you have borrowed:
| On a $100,000 balance | Interest + insurance added that year | of which annual mortgage insurance (0.5%) |
|---|---|---|
| Year 1 | $7,500 | $500 |
| Year 5 | $10,000 | $668 |
| Year 10 | $14,400 | $959 |
That compounding, not the upfront fees, is the larger cost over a long life. You can slow it by making voluntary payments; see paying a reverse mortgage down.
Mostly the 2% upfront FHA mortgage insurance on the home’s value, plus an origination fee capped at $6,000, third-party costs and counseling. On a $400,000 home, roughly $17,100 in total. Most can be financed into the loan.
For an FHA-insured HECM: 2% of the first $200,000 of the home’s value plus 1% above that, with a minimum of $2,500 and a maximum of $6,000. Lenders may charge less or waive it.
No. There is a 2% upfront premium at closing and an annual premium of 0.5% of the loan balance, added to the balance each month.
Yes. Most upfront costs can be financed into the loan, so little cash is needed at closing. They then grow with the balance.
Educational, not individual financial advice. The Equity Ledger doesn’t originate loans. Reverse mortgages are complex and the right answer depends on your specific situation — confirm the details with a HUD-approved counselor before you decide.
Rules and figures are from U.S. government program materials current at publication; HECM limits and rates change — verify with HUD/FHA or a HUD-approved counselor.