HECM Reverse Mortgage Cost Breakdown
| Fee | Amount | When Paid |
|---|---|---|
| Origination fee | Up to $6,000 (regulated by HUD) | At closing |
| Upfront MIP | 2% of appraised home value (max $1.15M) | At closing |
| Closing costs | $2,000–$4,000 (appraisal, title, recording) | At closing |
| HUD counseling | $125–$200 | Before application |
| Annual MIP | 0.5% of outstanding balance/year | Ongoing (accumulates) |
| Interest rate | Variable: index + margin | Fixed: set at closing | Ongoing (accumulates) |
| Servicing fee | $30–$35/month (if applicable) | Ongoing (accumulates) |
Total Cost Example — $400,000 Home, 10-Year Loan
Origination fee: $6,000 (max). Upfront MIP (2% of $400,000): $8,000. Closing costs: $3,000. HUD counseling: $175. Total upfront: approximately $17,175. Most of these can be rolled into the loan — you don't pay out of pocket, but the starting balance is higher.
Starting balance: $17,175 (upfront fees). Interest accumulation on $200,000 principal draw at 7% over 10 years: ~$140,000. Annual MIP accumulation: ~$15,000. Ending loan balance: approximately $372,000 vs the original $200,000 draw — illustrating how quickly the balance grows.
Frequently Asked Questions
Yes — most upfront costs (origination fee, MIP, closing costs) can be financed into the loan proceeds. You don't need cash at closing. However, this increases your starting loan balance and reduces the equity remaining in your home. The HUD counseling fee is typically paid out of pocket before the application process.
Both options exist. Fixed-rate HECMs: available only with lump-sum payout; typically higher rate than variable. Adjustable-rate HECMs: available with all payout options (line of credit, monthly payments, tenure); rates adjust monthly or annually based on a benchmark index plus a lender margin. Most HECM borrowers choose adjustable-rate loans for the flexibility of non-lump-sum payout options.