Quick Answer
A HECM has an upfront FHA mortgage insurance premium of 2 percent of the home value counted, a yearly premium of 0.5 percent of the balance, an origination fee capped at $6,000, closing costs and interest. Most costs can be paid from the loan, but everything paid that way adds to what you owe.
What is the FHA mortgage insurance premium?
FHA insures every HECM, and you pay for that insurance in two parts. At closing, there's an upfront premium of 2 percent of the maximum claim amount. That's your home's value, counted up to the HECM limit. After that, there's a yearly premium of 0.5 percent of the loan balance, added to what you owe.
This insurance is what makes sure you never owe more than the home is worth.
How much can the lender charge to set up the loan?
The origination fee is capped by federal rules. The lender may charge the greater of $2,500, or 2 percent of the first $200,000 of the maximum claim amount plus 1 percent of the amount above $200,000. It can never be more than $6,000. Lenders can charge less, so it pays to ask.
Is there a monthly servicing fee?
Some lenders charge one. If they do, it can't be more than $30 a month on a fixed-rate loan or a loan that adjusts yearly, or $35 a month on a loan that adjusts monthly. The money for it is set aside from your loan amount at closing.
What other closing costs are there?
Third-party costs such as the appraisal, title search and title insurance, a survey, a credit report and recording fees. Federal rules limit these to reasonable and customary amounts, and never more than the amount actually paid.
How does interest add up?
You don't make monthly payments, so interest and fees are added to the balance each month. The longer the loan runs, the more the balance grows and the less is left for you or your heirs.
Common Questions
Why do reverse mortgages cost more to set up?
The CFPB says reverse mortgage closing costs are typically higher than for other loans, largely because borrowers must pay mortgage insurance.
Does the balance go down over time?
No. Interest, the yearly mortgage insurance premium and any servicing fee are added to the balance each month, so it goes up over time.
Sources
This guide is general information, not advice about your situation.