Initial Thoughts
One of the most frequently asked questions among financial professionals and their clients is, “What are the actual costs involved in obtaining a reverse mortgage?” While the structure of a Home Equity Conversion Mortgage (HECM) is relatively straightforward, the associated expenses can feel unclear or even overwhelming without proper explanation.
Dr. Wade Pfau and I discuss the costs in a video Here.
In this article, we’ll walk through the Three Primary Acquisition Costs of a standard HECM reverse mortgage and explain which costs are typically paid out-of-pocket versus those that are generally financed into the loan. Having this insight allows advisors to better guide their clients in evaluating whether a reverse mortgage fits within their broader retirement income strategy.
Note: In most cases, the only fees paid out-of-pocket upfront are for HUD-approved counseling and the home appraisal. Other costs are usually included in the loan amount.
FHA Mortgage Insurance Premium (MIP)
The Mortgage Insurance Premium (MIP) is paid to the Federal Housing Administration (FHA) to provide essential protections for both the lender and the borrower.
Initial (Upfront) MIP:
This one-time premium equals 2% of the home’s appraised value or the current FHA lending limit, whichever is lower. As of January 2025, the national lending limit is $1,209.750.Ongoing (Annual) MIP:
In addition to the upfront cost, borrowers are charged an annual MIP of 0.5% on the outstanding loan balance. This fee accrues over time and is repaid when the loan becomes due and payable (typically upon sale of the home, the borrower moving out, or death).
Why it matters:
This insurance guarantees that borrowers will continue receiving their loan proceeds—even if the lender goes out of business—and that they will never owe more than the home is worth when the loan is repaid.
Origination Fee
Lenders are permitted to charge an origination fee to cover their costs in processing and underwriting the loan.
The fee is capped by HUD at:
2% of the first $200,000 of the home’s value
1% of any amount above $200,000
The maximum allowable origination fee is $6,000
Note: This fee varies by lender and is often influenced by market conditions and secondary pricing factors. It is typically financed into the loan, not paid out-of-pocket.
Third-Party, Title, and Closing Costs
These are standard closing costs paid to third-party service providers to process, secure, and record the loan. They typically range from 0.5% to 1% of the home’s appraised value, though this may vary depending on state regulations and local service provider fees.
Common third-party fees may include:
Appraisal Fee (usually paid out-of-pocket)
Title Insurance (varies by state and home value)
Title Search / Title Settlement
Recording Fees
Notary & Document Prep
Courier or Delivery Charges
Mortgage Payoff (if refinancing or paying off an existing loan)
Most of these costs can be financed into the reverse mortgage, except the appraisal fee, which is typically paid upfront.
Standard Retail Acquisition Costs 2025
Note: These are standard estimates based on retail pricing as of 2025. Actual costs may vary based on property value, lender, interest rate environment, and loan type (fixed vs. adjustable).
Final Thoughts
Understanding acquisition costs is crucial for evaluating whether a reverse mortgage is a prudent part of a retirement income plan. While the initial numbers may seem high to clients at first glance, the ability to finance most of these costs — combined with the loan’s built-in protections and strategic value — can make reverse mortgages a viable solution for the right client profiles.
The content of this blog is for financial advisors and professionals only and is not intended for consumer use. Names, cases, and scenarios are fictionalized for illustrative purposes. The opinions expressed here are those of the author alone and do not reflect the views of any affiliated entities or individuals. Don Graves, NMLS #142667.
