Reverse mortgages have real costs. Knowing what they are before you start makes the decision easier. Here is what you will see on a HECM estimate.
Upfront costs
- FHA upfront mortgage insurance premium. Charged on every HECM and based on the home’s value. It pays for FHA’s insurance, which is what protects you and your heirs from owing more than the home is worth.
- Origination fee. The lender’s fee, capped by FHA rules.
- Third-party closing costs. Appraisal, title insurance, recording fees, credit report and similar items, much like a regular mortgage.
- Counseling fee. Some HUD-approved counselors charge a modest fee, and some waive it based on need.
Most of these can be paid from the loan proceeds, so you usually don’t need cash at closing.
Ongoing costs
- Interest accrues on the money you have used and is added to the loan balance.
- Annual FHA mortgage insurance is also added to the balance over time.
- Property taxes, homeowners insurance and upkeep stay your responsibility, just like today.
How to keep costs down
- Only take what you need now; a line of credit charges interest only on what you draw
- Compare the full estimate, not just one fee
- Ask about lender credits that can offset closing costs
- Make voluntary payments if you want to slow balance growth
You will get a written Loan Estimate before you commit, and the HUD-approved counselor will walk through costs with you as well.
Talk to a real person in Kansas City
Steve Clune is a licensed loan officer for Kansas and Missouri. Call or text with your questions. If you miss him, send a text and he’ll get back to you.