On a home worth $600,000, the federal upfront insurance premium alone is $12,000 (2% of the maximum claim amount, HUD Mortgagee Letter 2017-12, August 29, 2017), and the origination fee can reach the $6,000 cap (24 CFR 206.31, checked October 14, 2026).
The upfront costs, item by item
Almost every reverse mortgage sold in the U.S. is a Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA), part of the Department of Housing and Urban Development (HUD) (Consumer Financial Protection Bureau, Are there different types of reverse mortgages?, last reviewed July 11, 2022).
The Consumer Financial Protection Bureau (CFPB) lists three groups of upfront costs: an origination fee of $6,000 or less paid to the lender, third-party closing costs such as the appraisal, title search, surveys, inspections, recording fees, mortgage taxes and credit checks, and an initial mortgage insurance premium paid to FHA (CFPB, How much does a reverse mortgage loan cost?, last reviewed May 28, 2024). The same page says a reverse mortgage is typically more expensive than other home loans. You can pay these costs in cash or from the loan. Paying from the loan means no cash at closing, but less money left for you (same source), and interest is charged on those costs for as long as the loan lasts.
There may also be a fee for the required counseling session with a HUD-approved counselor. The CFPB says agencies may charge a reasonable fee that varies with your income and debts, cannot charge you if you cannot afford it, and must explain all charges before counseling (same source).
Initial mortgage insurance premium: 2% of the home's value, up to the limit
Since October 2, 2017, the initial mortgage insurance premium (MIP) is 2% of the maximum claim amount for every HECM borrower (HUD, Mortgagee Letter 2017-12, August 29, 2017). The maximum claim amount is the lowest of the appraised value, the purchase price in a purchase, or the national limit (24 CFR 206.3, checked October 14, 2026).
The national limit for 2026 is $1,249,125, effective January 1, 2026 (HUD, FHA Mortgage Limits, checked October 14, 2026). That equals 150% of the 2026 conforming loan limit of $832,750 (FHFA, November 25, 2025). So the premium is $12,000 on a home appraised at $600,000, and it tops out at $24,983 on any home worth $1,249,125 or more ($1,249,125 x 2%).
Note what the premium is charged on: the home's value, not the cash you take. A borrower who draws very little still pays the full 2%.
The origination fee cap, worked out
Federal rules cap the lender's origination fee at the greater of $2,500, or 2% of the first $200,000 of the maximum claim amount plus 1% of the amount above $200,000, and never more than $6,000. Lenders may charge less (24 CFR 206.31, Allowable charges and fees, checked October 14, 2026). The rule lets HUD raise the $6,000 ceiling by notice in $500 steps tied to inflation, so ask what cap applies on your closing date.
| Maximum claim amount | 2% of first $200,000 + 1% of the rest | Fee cap |
|---|---|---|
| $100,000 | $2,000 + $0 = $2,000 | $2,500 |
| $200,000 | $4,000 + $0 = $4,000 | $4,000 |
| $300,000 | $4,000 + $1,000 = $5,000 | $5,000 |
| $400,000 | $4,000 + $2,000 = $6,000 | $6,000 |
| $600,000 | $4,000 + $4,000 = $8,000 | $6,000 |
On a $100,000 home the formula gives $2,000, so the $2,500 floor applies. From a $400,000 maximum claim amount upward, the cap is $6,000. The cap is a ceiling, not a price list: this fee is one of the few you can negotiate.
Ongoing costs: interest, annual MIP and servicing
You make no monthly loan payment, but costs keep running. The CFPB lists interest, servicing fees paid to the lender, and an annual mortgage insurance premium of 0.5% of the outstanding balance, plus property charges such as homeowners insurance and property taxes (CFPB, How much does a reverse mortgage loan cost?, last reviewed May 28, 2024). The 0.5% annual rate has applied since October 2, 2017 (HUD, Mortgagee Letter 2017-12).
Interest and the annual premium are added to the balance every month, so next month's charges are figured on a bigger number. The CFPB calls this charging "interest and fees on top of the interest and fees" already added (same source). The larger the balance and the longer you keep the loan, the more you pay, which is why the CFPB says the way to keep ongoing costs low is to borrow only as much as you need (same source).
A servicing charge, if any, is either built into the note rate or charged as a fixed monthly amount set aside from your available money at closing, as HUD authorizes (24 CFR 206.207, checked October 14, 2026). Ask which one your offer uses and what it adds up to. The interest rate itself is covered on our page on reverse mortgage rates.
When the costs can be worth it
The costs are front-loaded. They make the most sense for someone who plans to stay in the home for many years, needs the cash flow or the standby credit line, and values never having a required monthly loan payment. Federal mortgage insurance is also what keeps the loan non-recourse: the CFPB explains that if the balance grows larger than the home's value, you or your heirs may not have to pay the difference (CFPB, What happens if my reverse mortgage loan balance grows larger than the value of my home?, last reviewed July 11, 2022).
They make the least sense for a short stay. If a move to a smaller home or to care is likely within a few years, the upfront costs and compounding can eat a large share of the equity, and selling may cost less. If you might sell, see selling a home with a large gain. To compare offers, ask several lenders for a written estimate with the same loan amount and the same type of loan, then compare the margin, origination fee and closing costs line by line. A HUD-approved counselor can help you read them; find one through the CFPB housing counselor search.
A plain example: what it costs on a $600,000 home and a $1,500,000 home
Hypothetical: one borrower, age 70, adjustable-rate HECM. The third-party closing costs of $3,000 are a hypothetical figure; real costs vary by state and home.
| Upfront item (hypothetical, age 70) | $600,000 home | $1,500,000 home |
|---|---|---|
| Maximum claim amount | $600,000 | $1,249,125 |
| Initial mortgage insurance premium (2%) | $12,000 | $24,983 |
| Origination fee at the cap | $6,000 | $6,000 |
| Third-party closing costs (hypothetical) | $3,000 | $3,000 |
| Total upfront costs | $21,000 | $33,983 |
Arithmetic for the larger home: the maximum claim amount is capped at $1,249,125, so the premium is $1,249,125 x 2% = $24,983. The origination formula gives $4,000 + $10,491 = $14,491, which the $6,000 cap cuts to $6,000.
Now the running cost. Hypothetical: the borrower finances the upfront costs and draws $100,000 (smaller home) or $200,000 (larger home) at closing. The note rate is a hypothetical 6.53%: the 1-year Treasury constant maturity rate of 4.53% on October 14, 2026 (U.S. Treasury, Daily Par Yield Curve Rates) plus a hypothetical 2.00% lender margin, held level for ten years. The annual premium of 0.5% is added, so the balance grows at 7.03% a year, compounded monthly.
| Hypothetical loan | Starting balance | Balance after 1 year | After 5 years | After 10 years | Interest over 10 years | Annual MIP over 10 years |
|---|---|---|---|---|---|---|
| $600,000 home, $100,000 drawn | $121,000 | $129,786 | $171,789 | $243,895 | $114,155 | $8,741 |
| $1,500,000 home, $200,000 drawn | $233,983 | $250,972 | $332,195 | $471,631 | $220,746 | $16,902 |
Arithmetic: each month the balance is multiplied by 1 + 0.0703 / 12. $121,000 x (1 + 0.0703/12) to the 120th power = $243,895. Over ten years the smaller loan costs $21,000 upfront + $114,155 interest + $8,741 annual premium = $143,896 for $100,000 of cash. The larger loan costs $33,983 + $220,746 + $16,902 = $271,631 for $200,000 of cash. A rate that moves up or down, or extra draws, would change every number here.
Red flags
- Saying a reverse mortgage has "no costs" because there is no monthly payment.
- Quoting only the origination fee and leaving out the 2% upfront premium and third-party closing costs.
- Charging the full $6,000 origination fee and calling it "the government fee".
- Not giving you a written estimate you can compare with other lenders.
- Leaving out what the balance could be in 5 or 10 years.
- Pushing you to take a large lump sum you do not need, so more interest builds up.
- Rushing you past counseling, or steering you to a specific counselor.
- Being vague about whether a servicing fee is in the rate or charged monthly.
- Suggesting you use the proceeds to buy an annuity or other insurance product.
- Bundling costs for home repairs you did not ask for into the loan.
Questions to ask before you sign
- What is the total of my upfront costs, item by item, in dollars?
- What is my maximum claim amount, and how did you get it?
- What origination fee are you charging, and will you lower it?
- Which third-party closing costs are estimates, and which are fixed?
- Is there a servicing fee? Is it in the rate or a monthly amount?
- What would my balance be after 5 and 10 years if I draw what I plan to?
- What does the counseling session cost, and is there a lower fee if I cannot afford it?
- If I pay some costs in cash instead of financing them, how much interest do I save?
- What margin are you offering, and what are the caps on rate changes?
- If I sell or move in three years, how much of my equity will the costs have used?
Long-Term Care and Your Home: Read This Before You Sign
A one-page checklist: what Medicare will and will not pay, the Medicaid look-back and estate recovery basics, the questions to ask before you buy long-term care coverage or take a reverse mortgage, and the tax rules if the house is sold. Every reverse mortgage cost to find on the estimate, and the questions that bring the total into the open. We’ll email it to you.
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Sources
- HUD: Mortgagee Letter 2017-12, HECM Mortgage Insurance Premium Rates and Principal Limit Factors (August 29, 2017)
- eCFR: 24 CFR 206.31, Allowable charges and fees (checked October 14, 2026)
- HUD: FHA Mortgage Limits, HECM limit for calendar year 2026 (checked October 14, 2026)
- FHFA: FHFA Announces Conforming Loan Limit Values for 2026 (November 25, 2025)
- CFPB: How much does a reverse mortgage loan cost? (last reviewed May 28, 2024)
- CFPB: What happens if my reverse mortgage loan balance grows larger than the value of my home? (last reviewed July 11, 2022)
- CFPB: Are there different types of reverse mortgages? (last reviewed July 11, 2022)
- U.S. Treasury: Daily Treasury Par Yield Curve Rates, 2026 (October 14, 2026)
- eCFR: 24 CFR Part 206, Home Equity Conversion Mortgage Insurance (checked October 14, 2026)
- CFPB: Find a housing counselor (checked October 14, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.