Reverse mortgages carry several costs. Here is exactly what you pay, upfront and over time.
What are the upfront costs of a reverse mortgage?
Upfront reverse mortgage costs include the origination fee, capped by HUD at $6,000, calculated as 2% of the first $200,000 of home value plus 1% of the amount above that. You also pay an initial FHA mortgage insurance premium of 2% of the home's appraised value (or lending limit), plus third-party closing costs for appraisal, title, recording, and counseling. Most of these costs can be rolled into the loan rather than paid out of pocket, though that increases your balance. A specialist at 1-800-MEDIGAP can itemize every charge for your specific home.
What are the ongoing costs of a reverse mortgage?
Ongoing reverse mortgage costs are interest charged on your growing balance and an annual FHA mortgage insurance premium of 0.5% of the loan balance. Interest can be fixed or adjustable; with adjustable rates, only drawn funds accrue interest. Some loans charge a modest monthly servicing fee. Because no payments are made, these costs compound and increase the balance over time. You also remain responsible for property taxes, homeowners insurance, and maintenance. Understanding the long-term compounding is key. Call 1-800-MEDIGAP to see projected balances over time.