What are the costs I will have to pay for a reverse mortgage?
Answer: The cost of a reverse mortgage will depend on the type of loan you choose, how much money you take out upfront, and the lender that you choose. They are usually more expensive than other home loans.
With a reverse mortgage, you’ll be charged in two ways: upfront and over time.
Upfront costs include lender fees, upfront mortgage insurance, and real estate closing costs. Your upfront mortgage insurance charge is based on the size of your loan, and how much you choose to take out in the first year. Find out more about upfront costs and why the amount of loan funds you take out upfront matters.
Many borrowers choose to pay for the upfront costs using their loan funds, rather than paying them out of pocket. Paying for upfront costs with loan funds is more expensive than paying them out of pocket. Learn why.
Costs over time include interest and ongoing mortgage insurance premiums. The interest rate you pay depends on what lender you choose. Choosing a loan with a lower interest rate can make a big difference. Take the time to compare quotes from multiple lenders so you can compare your interest rate.
You interest rate may be fixed or adjustable. Mortgage insurance adds an additional 1.25% on top of the interest rate.
Each month, interest and mortgage insurance charges are calculated based on the current loan balance. These charges are added to your loan balance. The amount you pay in interest and mortgage insurance compounds the same way a balance on a credit card does. The loan balance used to calculate interest and mortgage insurance charges each month includes prior months’ interest and mortgage insurance charges. As your loan balance grows, the amount of the interest and mortgage insurance charged that month also grows.
Don’t pay more interest and mortgage insurance than you have to – take out loan money only as you need it.
The specific costs and cautions listed here are for Home Equity Conversion Mortgage (HECM) reverse mortgages. HECMs are insured by the Federal Housing Administration (FHA). In addition to HECM mortgages, some lenders may offer proprietary (non-FHA insured) reverse mortgages, which may have different costs.
If you’re considering a reverse mortgage, you (and your spouse or partner) should talk with a reverse mortgage counselor to help you decide if a reverse mortgage is right for you. Visit HUD's counselor search page or call HUD's housing counselor referral line (1-800-569-4287) to find a HUD-approved housing counselor.