What Does It Cost To Get A Home Equity Conversion Mortgage?

When I am asked what it costs to get a reverse mortgage, I answer with my most common response: It depends.
What Does It Cost To Get A Home Equity Conversion Mortgage

When I am asked what it costs to get a reverse mortgage, I answer with my most common response:  It depends.

I don’t answer this way to be evasive, but everyone’s situation is different and there are several factors that determine the costs of a reverse mortgage.
What type of loan you choose, how much money you take out upfront, the interest rate you choose, and many others.

Before we continue, I want you to notice the title of this article.  I specifically did not say “What does it cost to get a reverse mortgage?”
In this article I want to focus on the costs of the FHA insured reverse mortgage program called the Home Equity Conversion Mortgage, (HECM).
This is the most popular reverse mortgage program, and the most expensive, (we’ll get to the reason for this later).  Even though it is the costliest,
it is the most versatile and offers the most access to your equity.  That’s why it is the most popular. 


Side NoteIn the interest of not extending this article any longer than it needs to be, I am not going to be discussing the basics of reverse mortgages.  You can learn how reverse mortgages work by visiting my FAQ page or my Reverse Mortgage Facts page.


Here is the more direct answer the question.  The closing costs on a HECM loan can be broken down into three categories:

  1. Initial Mortgage Insurance Premium (IMIP)
  2. Origination Fee
  3. Other Closing Costs (such as appraisal, title insurance, credit report, etc…)
  4. Ongoing Costs (Interest and MIP)

Initial Mortgage Insurance Premium (IMIP) is charged on all HECM loans.  In fact, it’s charged on all FHA insured loans, forward
and reverse.  However, the cost of the IMIP on reverse mortgages is based on the value of the home, not the loan amount, as it is with
a regular, forward FHA loan.  The IMIP cost for a HECM is 2.00% of the value of the home.

For example, if you have a home that is appraised for $300,000, the IMIP will be $6,000 (300,000 x 0.02). This 2% rule is applied on all HECM loans up
to a maximum value of $726,525.  This is called the “Maximum Claim Amount” because any value above this figure will not be considered in the calculation
of the loan amount.

Origination Fee is the fee that goes to the lender/broker who is origination the loan for you.  There is a formula for this as well.
The origination fee is calculated by charging 2.0% of the value of the home on the first $200,000 in value and 1.0% thereafter up to a maximum fee
of $6,000.  There is also a minimum fee allowed of $2,500.  Lenders and brokers are allowed to charge less.

For example, if you have a $300,000 you could be charged 2.0% on the first $200,000 in value (200,000 x 0.02 = $4,000) and 1.0% on the remaining $100,000
(100,000 x 0.01 = $1,000).  The maximum origination fee you can be charged on a $300,000 valued home is $5,000.  If your home is valued at
$400,000 or more, you can be charged no more than $6,000. 

If you have a $100,000 home, 2.0% of this is $2,000.  However, lenders are allowed to charge a minimum origination fee of $2,500.

Please note that, unlike the IMIP, these fees are negotiable.  The lender/broker may or may not be willing to negotiate with you.  It depends
on the loan amount, the interest rate (the higher the interest rate, the lower the fees, maybe), the company policies, etc…

Other Closing Costs are typically what I call “pass through fees”.  These are fees we pay to other people to get your loan processed.
These fees include appraisal fee, title insurance, closing fee, credit report, flood certification, recording, as well as a few others.  They
typically will total somewhere between $2,000 – $2,400 depending on the size of the loan or if your home is in a trust.

Some lenders may add “junk fees” which add to the profit of the company such as processing fees or documentation fees.  However, sometimes these may
look like junk fees, but if a lender uses a third- party processor this may be a legitimate fee.  For most HECM loans, we must pay an actual third-party
company to prepare our final closing documents and they charge us $175.  So, in my case, this is not a junk fee that my company is pocketing.

Keep an eye on these fees when reviewing a quote from a reverse mortgage lender.  If they seem excessive, even if they are legitimate fees, you may
be able to use it as leverage to get the lender to reduce the origination fee.

Ongoing Costs are the interest and mortgage insurance that you are charged every month you have the HECM in place.  These costs don’t
really fit in with the title of this article because they are not costs to get the loan.  But I wanted to address them here because they
are something to consider when weighing whether or not to get a reverse mortgage.

Once the reverse mortgage is in place, you will receive a monthly statement.  These statements will always have at least two charges on them.
One is the amount of interest you were charged last month and the other is the amount of mortgage insurance.

You might be saying to yourself “Wait!  I already paid mortgage insurance as part of the closing costs.”

Actually you didn’t pay anything.  You were charged it, but most people never actually pay anything on the reverse mortgage until
they move and sell the home.  If you were to pass away while you still have the reverse mortgage, you would technically never pay a penny.
This may seem trivial, but it differentiates the reverse mortgage from a normal forward mortgage because you do actually pay 100% of all the costs
as part of your monthly payment when you have a forward mortgage.  But you don’t actually pay anything with a reverse mortgage.

Sorry for the rant, but I think it’s an important distinction.   You are charged mortgage insurance as part of the closing costs.  That
fee is called the Initial Mortgage Insurance Premium.  The fee for this is 2.0% of the value of the home up to the maximum claim
amount.  Once you have the reverse mortgage in place, you are charged an ongoing mortgage insurance premium simply called MIP. This fee
is one-half of one-percent (0.005) of the loan balance

The MIP is charged monthly.  For example if you have a loan balance of $100,000, the annual MIP at the rate of 0.005 is $500.00.  We divide
this by 12 to arrive at the monthly fee of $41.67.

The interest is calculated the same way.  On a $100,000 loan balance, if your interest rate is 4.50%, the annual interest charge would be $4,500.00.
We divide this figure by 12 to arrive at a monthly interest charge of $375.00.

You need to be aware that the interest and MIP are compounded monthly.  This means that after the first month, on a $100,000 loan balance, you were
charged $375 in interest and $41.67 in MIP  Your loan balance after the first month grew from $100,000 to $100,416.67.  This is the new amount
you will be charged interest and MIP on for the next month. 

I always make sure to be as clear as possible about the compounding interest and MIP with everyone I speak to so you can make an informed decision if this
is the right loan for you.

As always, please feel free to contact me directly at 303-467-7821 or e-mail me at bruce@almortgageinc.com with any questions.

Picture of Bruce Simmons

Bruce Simmons

I absolutely love what I do - working with senior homeowners to help them live a more comfortable, flexible and secure retirement. I have the absolute best customers in the world, and even though I worked in the forward mortgage business for a number of years, I could never go back to doing conventional loans. I'm a 100% reverse mortgage specialist.

5.0

My wife and I are retired and had a mortgage that was quite high. We contacted Bruce regarding a Reverse Mortgage and were pleased with his knowledge and experience. He made the whole process very easy and explained everything along the way. Since then, I have had a couple of questions and contacted him regarding the RM. Bruce has always been very responsive and returned our calls within minutes. We couldn't be happier having used Bruce for the Reverse Mortgage and highly recommend him.

Bruce has been serving my interest over and above what one might expect during the whole process of handling my reverse mortgage dating back to 2010 and continues to be available at present whenever a question may arise. He is one of the most reliable, trustworthy and knowledgeable experts regarding reverse mortgages that I have had the privilege to do business with! I would highly recommend Bruce to anyone who is considering a reverse mortgage. Thank you Bruce!

I met Bruce from a referral who just love what he did for them on their Reverse Mortgage, So I contacted Bruce and told him my story and he came up with a great Reverse Mortgage for me and my needs and now I am living good and not worrying about Finances anymore. He had it done in a timely manner. If you are looking for the MAN to help you get the best Reverse Mortgage you need to call him and hope you let him help you.

Bruce is one of the most professional, knowledgeable and efficient experts I have worked ŵith ever in any field. He is fast to answer and always ready to help...and he's a great guy!

Gerald Cook
Gerald Cook
5.0

Bruce did our original reverse mortgage and has also refinanced it twice. He works hard to get the best deal possible while making it as easy for us as possible. When our first refinance received a low initial appraisal, Bruce helped the appraiser find better information and increase the appraised value. He's the best.

I was hesitate about getting a reverse mortgage until Bruce Simons put my mind at rest. He is easy to work with, extremely knowledgeable and efficient. Things get done and he will make sure that you understand every part of the process. I interviewed several other people and he was hands down.....The only choice.

Doing a Reverse Mortgage is a major decision, when working with Bruce he came out personally to go over every thing in detail, there was no pressure to finalize the transaction, I had even put the loan on hold for awhile even though I had locked in my rate, I had called Bruce off and on for a few weeks to ask questions that I had concerns about and he was always available to talk to me. In the end it gave me time to feel comfortable about my decision to move forward with the Reverse. Bruce was very pleasant to work with and would certainly recommend Bruce if you are going to consider a Reverse Mortgage.

Bruce Simmons at American Liberty is one of the best in the reverse mortgage industry. I have known and worked with him for years and he always does a great job. You are in good hands with Bruce and know that he will take good care of you or your loved ones every step of the way.

Best thing I ever did! Bruce Simmons at American Liberty Mortgage is the best. He is always there to answer your questions, and can easily explain the whole idea of a Reverse Mortgage. He takes the time and goes through the entire process with you. It worked out so well for me. Thank You Bruce!

We had researched Reverse Mortgages for 5 years and after hearing about Bruce Simmons and meeting with him, we finally decided to move forward with the Reverse Morgage. It has been over a year now and we are still very pleased with our decision. We think Bruce is very professional, knowledgeable and honest. Thank you, Bruce, for all your help.

I first met Bruce Simmons 2017. I found him on the internet. I was looking for someone local. I called him and explained I was only looking into doing a reverse mortgage, so I did not want him to think this was something I was ready to do. Bruce was friendly, very open about the basics of a reverse mortgage. Bruce came to my home and presented the figures and other details that he could offer. The first thing that impressed me was this was not a hard sell, more of a informational meeting. He was very open about all of the details, and answered my questions without hesitation. What really was evident was he was establishing a relationship with me, and I realized he knew I would not take the loan at that time. There was not enough equity in my home, and I would have to bring money to the table. Although I was not ready to do a loan, Bruce assured me he is always available for questions. Four years later, I finally did do a reverse mortgage, and I couldn't be happier with having done it. I have done away with a mortgage payment which allows me to fund my retirement account with that mortgage payment. We did some much needed landscaping with our cash out transaction, and will move on to improvements inside of the house. My reverse mortgage has a line of credit, and I feel sense security knowing it is there if I need it. Bruce explained that a reverse mortgage is not for everyone, but I feel certain that he paved the way for a strategy that worked for me. I will definitely do a refinance when the time is right. I will check in with Bruce to be sure what the benefits are when I do it again.

I have worked with Bruce Simmons for 15 years. Bruce is one of the best in the industry. He is extremely knowledgeable, kinds and detailed in what he does. His clients love working with him and trust him to help them with their Reverse Mortgage loans. I would recommend Bruce to anyone I know that is thinking about or wanting to do a Reverse Mortgage. He will always take very good care of the customers and make sure their needs are met! Class act and one of the best in the industry by far!

Free Reverse Mortgage Guide

Unlock the secrets to a more secure retirement with our exclusive Consumer Guide! Discover if a reverse mortgage is your golden ticket to financial freedom and comfort in your later years. 

Reverse Mortgage Guide - Popup

Would You Like To Chat By Phone Or Zoom?

Reverse Mortgage Guide

Reverse Mortgage Guide

Unlock the secrets to a more secure retirement with our exclusive Consumer Guide! Discover if a reverse mortgage is your golden ticket to financial freedom and comfort in your later years. 

Reverse Mortgage Guide - Popup
John Addante
John Addante

Left us a 5 star review

My wife and I are retired and had a mortgage that was quite high. We contacted Bruce regarding a Reverse Mortgage and were pleased with his knowledge and experience. He made the whole process very easy and explained everything along the way. Since then, I have had a couple of questions and contacted him regarding the RM. Bruce has always been very responsive and returned our calls within minutes. We couldn't be happier having used Bruce for the Reverse Mortgage and highly recommend him.

Bruce has been serving my interest over and above what one might expect during the whole process of handling my reverse mortgage dating back to 2010 and continues to be available at present whenever a question may arise. He is one of the most reliable, trustworthy and knowledgeable experts regarding reverse mortgages that I have had the privilege to do business with! I would highly recommend Bruce to anyone who is considering a reverse mortgage. Thank you Bruce!

I met Bruce from a referral who just love what he did for them on their Reverse Mortgage, So I contacted Bruce and told him my story and he came up with a great Reverse Mortgage for me and my needs and now I am living good and not worrying about Finances anymore. He had it done in a timely manner. If you are looking for the MAN to help you get the best Reverse Mortgage you need to call him and hope you let him help you.

Bruce is one of the most professional, knowledgeable and efficient experts I have worked ŵith ever in any field. He is fast to answer and always ready to help...and he's a great guy!

I was hesitate about getting a reverse mortgage until Bruce Simons put my mind at rest. He is easy to work with, extremely knowledgeable and efficient. Things get done and he will make sure that you understand every part of the process. I interviewed several other people and he was hands down.....The only choice.

Doing a Reverse Mortgage is a major decision, when working with Bruce he came out personally to go over every thing in detail, there was no pressure to finalize the transaction, I had even put the loan on hold for awhile even though I had locked in my rate, I had called Bruce off and on for a few weeks to ask questions that I had concerns about and he was always available to talk to me. In the end it gave me time to feel comfortable about my decision to move forward with the Reverse. Bruce was very pleasant to work with and would certainly recommend Bruce if you are going to consider a Reverse Mortgage.

Bruce Simmons at American Liberty is one of the best in the reverse mortgage industry. I have known and worked with him for years and he always does a great job. You are in good hands with Bruce and know that he will take good care of you or your loved ones every step of the way.

Best thing I ever did! Bruce Simmons at American Liberty Mortgage is the best. He is always there to answer your questions, and can easily explain the whole idea of a Reverse Mortgage. He takes the time and goes through the entire process with you. It worked out so well for me. Thank You Bruce!

We had researched Reverse Mortgages for 5 years and after hearing about Bruce Simmons and meeting with him, we finally decided to move forward with the Reverse Morgage. It has been over a year now and we are still very pleased with our decision. We think Bruce is very professional, knowledgeable and honest. Thank you, Bruce, for all your help.

I first met Bruce Simmons 2017. I found him on the internet. I was looking for someone local. I called him and explained I was only looking into doing a reverse mortgage, so I did not want him to think this was something I was ready to do. Bruce was friendly, very open about the basics of a reverse mortgage. Bruce came to my home and presented the figures and other details that he could offer. The first thing that impressed me was this was not a hard sell, more of a informational meeting. He was very open about all of the details, and answered my questions without hesitation. What really was evident was he was establishing a relationship with me, and I realized he knew I would not take the loan at that time. There was not enough equity in my home, and I would have to bring money to the table. Although I was not ready to do a loan, Bruce assured me he is always available for questions. Four years later, I finally did do a reverse mortgage, and I couldn't be happier with having done it. I have done away with a mortgage payment which allows me to fund my retirement account with that mortgage payment. We did some much needed landscaping with our cash out transaction, and will move on to improvements inside of the house. My reverse mortgage has a line of credit, and I feel sense security knowing it is there if I need it. Bruce explained that a reverse mortgage is not for everyone, but I feel certain that he paved the way for a strategy that worked for me. I will definitely do a refinance when the time is right. I will check in with Bruce to be sure what the benefits are when I do it again.

I have worked with Bruce Simmons for 15 years. Bruce is one of the best in the industry. He is extremely knowledgeable, kinds and detailed in what he does. His clients love working with him and trust him to help them with their Reverse Mortgage loans. I would recommend Bruce to anyone I know that is thinking about or wanting to do a Reverse Mortgage. He will always take very good care of the customers and make sure their needs are met! Class act and one of the best in the industry by far!