Reverse Mortgages: A Guide to Fees and Costs

15 May 2025

Have you been hearing about reverse mortgages and wondering what the catch is? Let’s face it—“reverse mortgage” sounds a little like a financial magic trick, doesn’t it? You borrow money against your home, but no monthly payments are required. Instead, the loan gets settled later, typically when you sell the house or after you’re no longer living there. It’s a financial tool that can be super helpful for seniors who want to unlock the equity in their homes, but let’s be honest: reverse mortgages aren’t free.

If you’re considering one, it’s important to know what you’re getting into, especially when it comes to the fees and costs. In this guide, we’ll break it all down so you can decide if a reverse mortgage is right for you—or if it’s one of those things that sounds better on paper than in real life. Let’s dive in.

What Is a Reverse Mortgage, Anyway?

Before we start talking about fees, let’s make sure we’re all on the same page about what a reverse mortgage actually is. A reverse mortgage is a type of loan designed for homeowners aged 62 and older. Unlike a traditional mortgage, where you make monthly payments to pay off your home loan, a reverse mortgage allows you to borrow money against your home’s equity—and you don’t have to make monthly payments.

Sounds like a dream, right? Well, hold up. While it can be a great way to access money during retirement, reverse mortgages come with strings attached. For starters, you’re required to keep up with property taxes, homeowners insurance, and maintenance costs. And then, of course, there are the fees. Spoiler alert: they can be significant. Let’s break those down.

Types of Reverse Mortgages

Before we jump into the nitty-gritty of fees, it’s worth mentioning that not all reverse mortgages are created equal. The costs involved can vary depending on the type of reverse mortgage you choose. Here are the three main types:

1. Home Equity Conversion Mortgage (HECM)

The most common type of reverse mortgage, HECMs are insured by the Federal Housing Administration (FHA). These tend to have more regulated fees, but they still aren’t cheap.

2. Proprietary Reverse Mortgages

These are private loans offered by lenders. They’re generally designed for people with higher-value homes. Since they’re not backed by the government, the fees can vary—and sometimes they’re higher.

3. Single-Purpose Reverse Mortgages

These are the least expensive option, but they’re also the most restrictive. Offered by some state or local governments and non-profits, they can only be used for specific purposes, like home repairs or property taxes.

Now let’s dive into the costs.

Breaking Down the Fees and Costs of a Reverse Mortgage

Reverse mortgages might give you easy access to cash, but they aren’t free money. Let’s take a closer look at some of the fees and costs that come with the territory.

1. Origination Fee

Think of the origination fee as the “starter fee” for getting your reverse mortgage set up. Lenders use this fee to cover administrative costs. For a HECM, the FHA caps the origination fee at 2% of the first $200,000 of your home’s value, plus 1% of any amount over $200,000. The total fee is capped at $6,000.

In plain English? If your home is worth $300,000, your origination fee could be up to $5,000. That’s a pretty hefty chunk, right?

2. FHA Mortgage Insurance Premium (MIP)

If you go with a HECM, you’ll need to pay for mortgage insurance to protect the lender against losses if your home’s value drops below what you owe. This fee includes:

- Upfront MIP: Usually 2% of the home’s appraised value or the HECM lending limit, whichever is less.
- Annual MIP: This is 0.5% of the outstanding loan balance and accrues over time.

Why is this insurance necessary? Well, imagine this: your home’s value goes down in the future, and when it’s sold, it doesn’t fully cover what you owe. The insurance makes sure lenders don’t lose money—and that your heirs aren’t stuck with the bill.

3. Appraisal Fee

Before a lender approves your reverse mortgage, they’ll want to know your home’s current market value. That’s where the appraisal comes in. Expect to pay anywhere from $300 to $600 for a professional appraiser to assess your property.

And heads up—if the appraiser finds repairs that need to be made to meet FHA standards, you’ll need to cover those costs before the loan can move forward.

4. Closing Costs

Just like with a traditional mortgage, reverse mortgages come with closing costs. These can include:

- Credit checks
- Title insurance
- Recording fees
- Escrow services

Altogether, closing costs can easily run into the thousands. They’re typically rolled into the loan, but that just means you’ll owe more in the end.

5. Servicing Fees

Some lenders charge monthly servicing fees to manage your loan. These fees usually range from $25 to $35 per month. While that may not sound like much, over the years, these fees add up.

How Reverse Mortgage Costs Are Paid

Here’s the thing: most of these fees and costs are rolled into the loan itself. That means you’re not paying them out of pocket upfront (phew!), but they are deducted from the amount of money you can borrow. Essentially, you’re borrowing the money to pay the fees—and that means you’ll owe even more in the end.

Are Reverse Mortgages Worth the Cost?

So, here’s the million-dollar question: are reverse mortgages worth it? Well, that depends. If you’re facing financial struggles and need a way to supplement your retirement income, a reverse mortgage can offer some much-needed breathing room. But if you’re not careful, the fees can eat away at the equity in your home.

It’s kind of like eating a really fancy cake. Looks delicious, right? But by the time you account for all the layers of icing (aka fees), you realize there might not be as much cake as you thought. The key is to make sure the benefits outweigh the costs.

Tips for Minimizing Reverse Mortgage Costs

If you’re leaning toward getting a reverse mortgage, here are a few tips to help keep costs under control:

1. Shop Around
Not all lenders charge the same fees. Don’t be afraid to compare offers and negotiate.

2. Consider a Single-Purpose Reverse Mortgage
If you only need funds for a specific reason, this could save you a lot on fees.

3. Understand the Terms
Ask plenty of questions, and make sure you fully understand all the costs involved before signing on the dotted line.

4. Talk to a HUD-Approved Counselor
For HECMs, you’re required to meet with a counselor before getting the loan. Use this as an opportunity to ask about fees and whether a reverse mortgage makes sense for your situation.

Final Thoughts

Reverse mortgages can be a lifesaver for some people, but they’re not for everyone. The fees and costs can add up quickly, so it’s important to weigh the pros and cons carefully. Think of it like buying a car: you wouldn’t just look at the sticker price—you’d also consider the cost of insurance, maintenance, and gas. The same applies here.

If you decide to move forward, make sure you go in with your eyes wide open. And remember, it’s okay to ask questions, get a second opinion, or even step back and say, “This doesn’t feel right.” After all, it’s your home and your financial future.