Costs of a Reverse Mortgage
24 April 2006, Revised December 2, 2008, January 27, 2010, July 28, 2012,
March 27, 2017, July 17, 2018
Origination Fees on Reverse Mortgages
The settlement charges on a reverse mortgage cover pretty much the same
costs that are involved on a forward mortgage, but there are some
Instead of a list of lender charges, which can very from lender to
lender, reverse mortgages have one "origination fee" which covers all
lender costs. The maximum fee is set by regulation at 2% of the
first $200,000 of property value plus 1% of the remaining value up to
$6,000, which is the maximum fee. Lenders are free to charge less
than the maximum, and on transactions with substantial initial loan
amounts, the lenders on this site charge negative origination fees --
meaning they offer rebates which are used to defray other settlement
Other Reverse Mortgage Costs Paid at Origination
HECM borrowers must pay FHA an upfront mortgage insurance premium equal to 2 percent of the lower of home value and the maximum loan limit of $679,650.
Other upfront fees cover title insurance, appraisal, credit report,
flood certification, document preparation, closing, property survey and
pest inspection. In 2017, these fees totaled about $2600 on a property
in Pennsylvania worth $200,000, and about $4600 on a property in
Pennsylvania worth $600,000
None of the upfront costs are out-of-pocket, they can all be included in
the loan amount. But a chunk of the borrower's equity is used up in the
process, which makes the transaction very expensive if it terminates
within a short period.
In years past, borrowers paid a monthly charge of $30-35 to cover the cost of servicing.
In addition, to assure that there would always be enough equity in the
property to cover servicing costs, a sum of money ws earmarked for
servicing at the outset of the transaction. Called a "set-aside", the
loan limit used in calculating the credit line or annuity was reduced by
that amount. In 2017, however, this charge had largely disappeared.