Reviewed by Dan Frio, NMLS #246527, 38 years in mortgages · October 15, 2026
A reverse mortgage has real costs, and you deserve to see them clearly. Upfront costs are higher than a HELOC or a cash-out refinance. Here is what each cost is and how it works.
The good news: most of these costs can be financed into the loan, so you do not need to pay them out of pocket at closing.
HECMs carry an upfront FHA mortgage insurance premium, or MIP. It is 2 percent of the maximum claim amount. The maximum claim amount is your home's value, up to the FHA lending limit.
This insurance is what makes the loan non-recourse. It is why you and your heirs never owe more than the home is worth.
There is also an annual mortgage insurance charge of 0.5 percent of the loan balance. It is added to the balance over time. You do not write a monthly check for it.
The lender may charge an origination fee. FHA rules cap it. The fee can be 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.
Like any mortgage, there are closing costs paid to other companies. These can include the appraisal, title insurance, recording fees, and a credit report. The amounts depend on where you live and the services used.
Some loans include a monthly servicing fee for managing the loan. If one is charged, it is up to $35 a month, and it is added to the balance.
Interest is charged on the money you use, and it is added to the balance. Because you do not make required monthly payments, the balance grows over time instead of shrinking. You can make voluntary payments any time, with no penalty, to slow that growth.
Before you apply, you must meet with an independent HUD-approved counselor. The session typically costs around $125 to $200. The counselor works for you, not the lender.
In the first 12 months, you can generally use up to 60 percent of your principal limit. You can use more if you need it to pay off mandatory obligations, such as an existing mortgage. The rest becomes available after the first year.
Costs include a 2 percent upfront FHA mortgage insurance premium, a 0.5 percent annual mortgage insurance charge, an origination fee capped at $6,000, third-party closing costs, any servicing fee, and interest.
Most costs can be financed into the loan. HUD counseling, typically around $125 to $200, is usually paid before you apply.
The origination fee is the greater of $2,500 or 2 percent of the first $200,000 plus 1 percent above that, and it can never exceed $6,000.
Generally you can use up to 60 percent of the principal limit in the first 12 months, unless more is needed to pay off mandatory obligations such as an existing mortgage.
Interest, mortgage insurance, and any servicing fee are added to the balance. Since no monthly payment is required, the balance grows over time.