Sebastian Frey( Seasoned Professional )

Seb Frey is a REALTOR® and founder of Team Sixty Plus, a curated network connecting older adults and their families with trusted professionals across California. With decades of experience helping homeowners 60+ navigate major life transitions—like downsizing, aging in place, or passing on a legacy—Seb brings deep market knowledge, a compassionate approach, and a commitment to simplifying complex decisions. When he’s not advising clients, he’s sharing expert insights on real estate, retirement strategies, and quality-of-life resources for the 60+ community.

A Complete Breakdown of Every Fee, Charge, and Long-Term Expense

Here’s a question I get at least once a week from homeowners over 60: “Seb, I keep seeing those Tom Selleck reverse mortgage commercials. What’s the catch? How much does one of these things actually cost?”

Fair question. And the honest answer is — it depends, but it’s not cheap. A reverse mortgage can be a legitimate financial tool for the right homeowner in the right situation. But before you sign anything, you need to understand exactly what you’re paying, when you’re paying it, and how those costs compound over time. Because here’s the thing nobody tells you in those commercials: the real cost of a reverse mortgage isn’t just the upfront fees. It’s what happens to your home equity over the next 10, 15, or 20 years.

Let me walk you through every dollar.

What Is a Reverse Mortgage, Exactly?

Before we dive into the costs, let’s make sure we’re on the same page. A reverse mortgage (most commonly a Home Equity Conversion Mortgage (HECM), which is insured by the FHA) allows homeowners age 62 and older to borrow against their home’s equity without making monthly mortgage payments. You can receive the money as a lump sum, a line of credit, monthly payments, or a combination.

The loan balance grows over time as interest and fees accumulate. It becomes due when you sell the home, move out permanently, or pass away. Your heirs then settle the loan, usually by selling the property.

The Upfront Costs: What You Pay to Get the Loan

The first category of reverse mortgage costs are the one-time fees you pay at closing. The good news? Most of these can be rolled into the loan itself, meaning you don’t have to write a check at the closing table. The not-so-good news? Financing those fees means you start your loan already owing more…and you pay interest on those fees for the entire life of the loan.

HUD-Approved Counseling Fee

Before you can even apply for a HECM reverse mortgage, the FHA requires you to complete a counseling session with a HUD-approved counselor. This isn’t optional — it’s mandated by federal law. The counselor will walk you through how reverse mortgages work, your obligations as a borrower, and alternatives you might want to consider.

The counseling fee typically runs between $125 and $200, depending on the agency. If you can’t afford it, the Consumer Financial Protection Bureau (CFPB) requires counselors to waive the fee. Either way, it’s a small price for a conversation that could save you from a costly mistake, or confirm that a reverse mortgage is the right move for you.

Origination Fee

This is the fee your lender charges for processing, underwriting, and closing your reverse mortgage. Unlike most other closing costs, origination fees on HECMs are capped by the FHA, which keeps lenders from overcharging.

Here’s how the cap works: lenders can charge up to 2% on the first $200,000 of your home’s appraised value, plus 1% on any value above $200,000. The minimum fee is $2,500 for homes valued under $125,000, and the maximum is capped at $6,000 regardless of home value.

Let me put some real numbers on that. For a home appraised at $500,000, the maximum origination fee would break down to $4,000 on the first $200,000 (at 2%) plus $3,000 on the remaining $300,000 (at 1%), totaling $7,000 — but because of the $6,000 cap, that’s what you’d actually pay at most.

Where I work in Silicon Valley, a “high cost of living” (HCOL) area, where median home values are well above the national average, most homeowners will hit that $6,000 cap. That said, some lenders will discount or even waive the origination fee, particularly on larger loans. It pays to shop around.

Initial Mortgage Insurance Premium (IMIP)

This is the big one at closing, and it’s non-negotiable. The initial mortgage insurance premium is a flat 2% of either your home’s appraised value or the FHA’s maximum claim amount (currently $1,249,125 for 2026) whichever is less.

Many people assume that the mortgage insurance premium is based on the initial loan amount, but sadly, that isn’t the case, which is why these up-front costs can be so high.

So if your home appraises at $800,000, your upfront MIP would be $16,000. If your home is worth $1.5 million, the premium is still calculated on the $1,249,125 cap, putting your IMIP at roughly $24,983.

What does this insurance actually buy you? Two critical protections. First, it guarantees you’ll receive all the loan proceeds you were promised, even if your lender goes out of business. Second — and this is important — it provides non-recourse protection, meaning neither you nor your heirs will ever owe more than the home is worth when the loan comes due. More on that later.

Third-Party Closing Costs

Just like any other real estate transaction, a reverse mortgage comes with a collection of third-party fees that cover the administrative nuts and bolts of the deal. These typically include the home appraisal (usually $400 to $700, though complex or high-value properties can cost more), a title search and title insurance, recording fees, credit report fees, document preparation charges, courier fees, and any applicable state or local mortgage taxes.

The total varies significantly depending on where you live and the specifics of your transaction. In the Bay Area, expect third-party closing costs to land somewhere in the range of $2,000 to $5,000 or more, factoring in California’s generally higher fee environment.

Total Upfront Cost Example

Let me put this all together with a realistic HCOL (“high cost of living”) scenario. Say you have a home appraised at $1,000,000:

• Counseling fee: $175
• Origination fee: $6,000 (capped)
• Initial Mortgage Insurance Premium (2%): $20,000
• Third-party closing costs: $3,500
• Total upfront costs: approximately $29,675

That’s roughly 3% of your home’s value, paid before you receive a dime from the loan. And remembe, if you finance those costs into the loan, you’re paying interest on that $29,675 for as long as the loan exists.

The Ongoing Costs: What You Pay Over the Life of the Loan

Here’s where it gets interesting, and where most people underestimate the true cost of a reverse mortgage. The ongoing fees don’t come out of your pocket each month. Instead, they get added to your loan balance. That means you’re paying interest on your interest, fees on your fees. It compounds. And over time, it can consume a significant portion of your home’s equity.

Interest

Interest is the single largest ongoing cost of a reverse mortgage, and it works differently depending on the type of loan you choose.

With a fixed-rate HECM, you receive a single lump sum at closing, and your interest rate stays the same for the entire life of the loan. As of early 2026, fixed rates on reverse mortgages sit around 7.5% or higher. That stability comes at a price, though: fixed-rate loans typically offer lower proceeds and less flexibility.

With an adjustable-rate HECM, you can choose a line of credit, monthly payments, a lump sum, or a combination. The rate adjusts based on an index (usually the Constant Maturity Treasury or SOFR) plus a margin set by the lender. Variable rates are currently starting around 5.25% with a 1.75% margin, though they fluctuate.

Here’s the key: with no monthly payments being made, interest accrues on the outstanding balance every single month and is added to what you owe. That’s negative amortization, and it’s the engine that drives your loan balance steadily upward.

In other words, a reverse mortgage is like the opposite of a regular mortgage: instead of owing less every month, you owe more every month (assuming you don’t make any payments, which most people do not).

Annual Mortgage Insurance Premium (MIP)

In addition to the upfront premium you paid at closing, HECMs carry an ongoing annual mortgage insurance premium of 0.5% of the outstanding loan balance. This is charged monthly (at roughly 0.042% per month) and added to your loan balance.

On a $200,000 loan balance, that’s about $1,000 per year, or around $84 per month being tacked onto what you owe. As your balance grows (because of accruing interest and these very fees), the dollar amount of MIP grows right along with it.

Servicing Fees

Your loan servicer may charge a monthly fee for managing your account — sending statements, disbursing payments, and making sure you’re meeting your obligations on taxes, insurance, and home maintenance. The FHA caps servicing fees at $30 per month for annually adjusting loans and $35 per month for monthly adjusting loans.

In practice, some lenders have stopped charging servicing fees altogether to stay competitive. But if your lender does charge them, these fees are also added to your loan balance over time.

How the Debt Grows Over Time: A Real-World Example

This is the part that keeps financial advisors up at night, and it’s the part every potential borrower needs to understand viscerally, not just intellectually.

Let’s work through a scenario. Suppose you’re 70 years old with a home worth $800,000 and no existing mortgage. You take a HECM line of credit and draw $200,000 at closing. Your interest rate is 6% (including the 0.5% MIP).

Year 1: Your initial balance of $200,000 grows to approximately $212,360. You haven’t spent another dollar, but you now owe over $12,000 more than you borrowed.

Year 5: That $200,000 has grown to approximately $270,000. Your home — assuming 3% annual appreciation — is now worth about $927,000. You still have significant equity, but the gap is narrowing.

Year 10: Your loan balance has ballooned to roughly $363,000. Your home, still appreciating at 3%, is worth about $1,075,000. You’ve lost about $163,000 in equity just from interest and fees — on money you already drew.

Year 15: The balance hits approximately $488,000. Home value at 3% growth: about $1,245,000. You still have equity, but the loan has consumed a substantial chunk of your home’s value.

Year 20: Your balance reaches roughly $656,000. If your home appreciated to around $1,445,000, you’re still above water. But if property values stagnated or declined? That’s where the non-recourse protection kicks in.

And remember — this example assumes you only drew $200,000 and never touched the line of credit again. If you draw additional funds over time, the math accelerates dramatically.

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What Happens if the Loan Balance Exceeds the Property Value?

This is the question that terrifies people. What if you live a very long time, property values drop, or both — and you end up owing more than your home is worth?

Here’s the answer, and it’s actually one of the best consumer protections built into the HECM program: a reverse mortgage is a non-recourse loan. That means the lender’s only recourse for repayment is the home itself. They cannot come after your savings, your retirement accounts, your Social Security, or any other assets. Neither you nor your heirs will ever owe more than the home’s appraised fair market value at the time of sale.

If the loan balance exceeds the property value when the loan comes due – say your heirs sell the home for $400,000 but the balance is $450,000 – the FHA mortgage insurance covers that $50,000 shortfall. That’s exactly what those mortgage insurance premiums have been paying for all along.

Your heirs have several options when the reverse mortgage comes due. They can sell the home and keep any equity above the loan balance. They can refinance the reverse mortgage into a traditional mortgage if they want to keep the property. Or, if the balance exceeds the home’s value, they can simply let the lender take the property without any personal financial liability. They will never have to write a check for the difference.

Here’s another important detail: if the home is underwater, heirs who want to keep it can purchase it for 95% of the current appraised value, even if the loan balance is higher.

This non-recourse protection means a reverse mortgage borrower can never be “upside down” in the devastating way that traditional mortgage holders experienced during the 2008 housing crash. You won’t face collection calls, judgments, or wage garnishments. The home stands alone as security for the debt.

The Hidden Costs Most People Forget

Beyond the line items on your closing statement and the interest that accrues monthly, there are several costs that reverse mortgage borrowers need to budget for — because failing to pay them can trigger a loan default:

Property taxes remain your responsibility for as long as you live in the home. In Santa Clara County, where effective tax rates hover around 1.2%, that’s a meaningful annual expense on a high-value home.

Homeowner’s insurance must be maintained continuously. Let your policy lapse, and your lender can call the loan due.

Home maintenance is a loan obligation, not just good practice. You’re required to keep the property in reasonable condition. Deferred maintenance that leads to code violations or structural deterioration can put your loan in jeopardy.

HOA fees, if applicable, must stay current as well.

As of 2025, the average annual cost of homeownership expenses beyond the mortgage — including maintenance, taxes, and insurance — tops $15,000 nationally. In high cost areas, it’s significantly higher. Before taking a reverse mortgage, make sure you can comfortably cover these ongoing obligations with your remaining income and assets.

Is It Worth the Cost?

I’m a real estate broker, not a financial advisor, so I won’t tell you whether a reverse mortgage is “right” for you. That depends on your complete financial picture, your health, your family situation, and your long-term plans.

What I will tell you is this: understand the math before you sign. A reverse mortgage can be a powerful tool for the right homeowner — someone who plans to stay in their home long-term, needs supplemental income, has significant equity, and has no plans to leave the house as a primary inheritance vehicle.

But it’s an expensive tool. Between the upfront costs, compounding interest, and ongoing insurance premiums, you’re paying a premium for the flexibility and security a reverse mortgage provides. Make sure that premium is worth it for your situation.

The Bottom Line

The total cost of a reverse mortgage includes upfront expenses typically ranging from 2% to 6% of the home’s value, plus ongoing interest (currently around 5% to 8%), annual mortgage insurance (0.5% of the balance), and potential servicing fees. These costs compound over time because they’re added to the loan balance rather than paid monthly.

For a long-time homeowner with a $1 million property who draws $300,000, the total cost over 10 years — including all interest, MIP, and fees — could easily exceed $200,000. Over 20 years, it could surpass $500,000.

The non-recourse protection is real and valuable: you’ll never owe more than your home is worth, and your other assets are untouchable. But that protection doesn’t mean the loan is free. It means the cost is capped at your home equity — which, for most people, is their single largest asset.

If you’re considering a reverse mortgage, talk to a HUD-approved counselor, get quotes from at least three lenders, and — just as importantly — talk to your family. This is a decision that affects everyone.

Sebastian Frey Seasoned Professional

Seb Frey is a REALTOR® and founder of Team Sixty Plus, a curated network connecting older adults and their families with trusted professionals across California. With decades of experience helping homeowners 60+ navigate major life transitions—like downsizing, aging in place, or passing on a legacy—Seb brings deep market knowledge, a compassionate approach, and a commitment to simplifying complex decisions. When he's not advising clients, he's sharing expert insights on real estate, retirement strategies, and quality-of-life resources for the 60+ community.

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