Understanding HECM Fees: Upfront, Ongoing, and Closing Costs

One of the most common complaints about reverse mortgages — especially Home Equity Conversion Mortgages (HECMs) — is that they come with high fees. And in many ways, this concern is valid. Compared to traditional mortgages, HECM costs can seem steep at first glance.

However, these fees account for federal insurance requirements, borrower protections, and the fact that homeowners aren’t required to make monthly mortgage payments. Let’s look at how HECM fees work and when they may or may not make sense.

Upfront HECM fees you may see at closing

Upfront fees are one-time costs that typically get rolled into the loan balance rather than paid out of pocket.

Upfront mortgage insurance premium (MIP)

The upfront mortgage insurance premium is one of the largest HECM expenses. It’s equal to 2% of the home’s appraised value or the FHA lending limit, whichever is lower. This premium funds the FHA insurance program and provides several protections.

First, it provides non-recourse protection, which means borrowers won’t owe more than the home is worth. It also ensures lenders get paid even if the loan balance grows, and allows borrowers to stay in their homes as long as they meet the loan obligations.

Origination fee

Lenders charge an origination fee to cover the cost of processing and underwriting the loan. FHA rules cap how much lenders can charge based on the home’s value, which helps prevent excessive fees. While origination fees can vary by lender, they’re regulated by the HUD. Borrowers should always ask for a clear breakdown before moving forward.

Third-party and closing costs

HECMs also include standard closing costs similar to those you’ll encounter on traditional mortgages. These may include appraisal fees, title insurance, recording fees, credit checks, and the required HUD counseling session.

These costs vary by location and provider, but they’re not unique to reverse mortgages. They’re part of the administrative process of creating and recording a mortgage loan.

Ongoing costs that accrue over time

In addition to upfront fees, HECMs include ongoing costs that affect how the loan balance grows over time.

Annual mortgage insurance premium

HECM borrowers pay an annual mortgage insurance premium that accrues on the outstanding loan balance. This ongoing MIP supports the FHA insurance program and maintains borrower protections throughout the life of the loan. Because it compounds over time, this cost is an important factor when evaluating the long-term equity impact.

Interest charges

Interest accrues on the borrowed amount, but instead of making monthly payments, the balance grows. HECMs may have fixed or adjustable interest rates, depending on how the borrower chooses to receive funds. Adjustable-rate loans are often paired with lines of credit or monthly payments, while fixed-rate loans usually require a lump-sum payout.

Servicing fees (if applicable)

Many newer HECMs no longer include monthly servicing fees, but older reverse mortgages may still have them. If servicing fees apply, they’re added to the loan balance over time. Borrowers should confirm whether servicing fees are included and how they’re structured.

Costs to expect when the loan ends

A HECM becomes due when the borrower sells the home, moves out permanently, or passes away. If the home is sold, typical real estate transaction costs apply, including agent commissions and potential repairs needed to prepare the property for sale. The loan balance is repaid from the sale proceeds. Heirs can also choose to keep the home by paying off the loan balance, often through refinancing or other funds.

HECMs are non-recourse loans, meaning neither the borrower nor their heirs is responsible for paying more than the home’s value. If the loan balance exceeds what the home sells for, FHA insurance covers the difference. This protection is one of the primary reasons HECM fees are higher than many traditional mortgage products.

How to evaluate HECM costs before applying

HECM fees are higher than many borrowers expect, but those costs fund protections that make reverse mortgages safer and more flexible for older homeowners. Before committing to a reverse mortgage, review the loan estimate carefully and compare offers from multiple lenders. Ask which fees are capped, how interest rates are structured, and how costs affect your available proceeds.

By understanding what you’re paying for and how long you plan to use the loan, you can make a more informed decision about whether a HECM supports your retirement strategy or if another option may be a better fit.