HECM Costs and Fees — Transparent Breakdown of Reverse Mortgage Charges
Every financial product has costs — and HECMs are no exception. Understanding what you will be charged, and why, is part of making an informed decision. This page walks through every fee category so you know what to expect before you talk to a lender.
Origination fee
Your lender charges an origination fee to process your HECM application, review your file, and close the loan. HUD caps this fee using a tiered formula based on the amount you borrow:
- First $400,000 of your home's value: 2% of that amount
- Above $400,000: 1% of that amount
- Maximum cap: $6,000
For example, on a $300,000 home, the maximum origination fee would be $6,000 (2% × $300,000). On a $600,000 home, it would be $8,000 (2% × $400,000 + 1% × $200,000) — but HUD's cap brings it back to $6,000. This fee is paid at closing from your loan proceeds.
FHA Mortgage Insurance Premium (MIP)
Every HECM includes two FHA MIP charges — one upfront and one annual:
- Upfront MIP: 2% of the maximum loan amount at closing. This is a one-time charge that goes into FHA's mutual mortgage insurance fund, which backs every HECM.
- Annual MIP: 0.5% of your outstanding loan balance each year. This is collected as part of your monthly loan servicing fee.
The MIP is what makes FHA insurance possible. It protects you (the borrower) by guaranteeing the non-recourse promise, and it protects lenders against default losses. Think of it as the premium on the insurance policy that covers you and your heirs.
Monthly servicing fee
Your lender charges a monthly fee to service your account — things like sending statements, tracking your draw, and coordinating with FHA. This fee is currently capped at $30 per month and is added to your loan balance. Some lenders deduct it from your draw instead; either way, it compounds over time.
HUD-approved counseling fee
Federal law requires every HECM borrower to complete a counseling session with a HUD-approved counselor before closing. This session typically costs around $150, paid directly to the counseling agency. It is a one-time charge. The counselor will walk you through your options during a 60–90 minute session — this is a consumer protection requirement, not an upsell.
Third-party closing costs
Just like any mortgage, a HECM involves standard third-party charges paid at closing:
- Title search and title insurance: Covers ownership disputes and ensures the title is clean
- Appraisal: A licensed appraiser determines the home's current market value, required by FHA
- Recording fees: Charged by your county to record the mortgage with the local government
- Escrow fees: Covers the setup of an escrow account for property taxes and homeowners insurance
These costs vary by location and lender. Your lender is required to give you a full HUD settlement statement (form HUD-1) at least three days before closing, itemizing every charge.
What the total cost looks like
Because HECM fees are tied to your home's value and loan amount, the total cost varies. On a $400,000 home, you might see origination fees around $6,000, an upfront MIP of roughly $6,800, third-party closing costs of $2,000–$4,000, and a counselor fee of about $150 — all told, possibly $15,000–$18,000 in upfront charges.
Rather than relying on estimates, request a full HUD settlement statement from your lender once you have an application in process. This document itemizes every fee by name and dollar amount. You can also ask your lender to show you the FHA "Funding Table" for your specific scenario — it breaks down exactly how each fee is calculated.