Reverse Mortgage Costs: Fees, Interest, and What You'll Actually Pay

Reverse mortgages are expensive. That's not a reason to avoid them automatically, but you need to see the real numbers before signing anything.

I'm Bill McCoy, a California mortgage broker (CA DRE #01212512). Here's what a reverse mortgage actually costs — upfront and over time.

Upfront Costs on a $700,000 Home

These fees get rolled into your loan balance (you don't pay out of pocket), but they reduce the cash available to you.

Origination fee: Up to $6,000. Calculated as 2% of the first $200K plus 1% above that, capped at $6,000. On a $700K home, you'll hit the cap.

FHA Mortgage Insurance Premium (MIP): 2% of home value upfront — that's $14,000 on a $700K home. Plus 0.5% of the loan balance annually, added to what you owe. This insurance is what guarantees you can't owe more than the home's worth.

Third-party closing costs:

• Appraisal: $500-$800
• Title insurance: $2,000-$4,000
• Recording fees: $200-$400
• Credit report: $50-$100
• Counseling fee: $125-$200

That's another $3,000-$6,000 in third-party costs.

Some lenders also charge a monthly servicing fee of $30-$35, added to your loan balance.

Total Upfront on a $700K Home

Fee	Amount
Origination	$6,000
FHA MIP (upfront)	$14,000
Third-party costs	~$4,000
Total	~$24,000

That $24,000 comes straight off the top of your available funds.

Interest Rates (2026)

Fixed-rate HECM: 6.0-7.0%. Only available with the lump-sum payout.

Variable-rate HECM: 5.5-6.5%. Required for line of credit, monthly payments, or combination payouts. Adjusts monthly or annually.

Variable rates are typically lower, and the line of credit option is only available at variable rates.

The Real Cost: Compounding Interest

Here's where it gets serious. Interest isn't just charged — it compounds on top of itself and on top of the fees that got rolled in.

Example at 6% interest, starting with a $200,000 balance:

Year	Balance Owed
Start	$200,000
Year 5	$268,000
Year 10	$358,000
Year 15	$479,000
Year 20	$641,000

That's the math. A $200,000 loan becomes $641,000 in 20 years at 6%. If your home doesn't appreciate at the same pace, your equity disappears.

The ongoing MIP (0.5% annually) makes it worse. It's added to your balance on top of the interest rate, so your effective rate is closer to 6.5-7.5%.

What This Means for Your Heirs

When the loan comes due — because you've sold, moved out, or passed away — the balance gets paid from the home's sale.

If the loan balance exceeds the home's value, your heirs owe nothing (that's the non-recourse protection). But they also inherit nothing from the house. FHA insurance covers the difference.

If the home appreciated enough to exceed the loan balance, your heirs keep what's left. But after 15-20 years of compounding, there's often not much remaining.

When the Costs Make Sense

The high costs don't automatically make reverse mortgages a bad deal. They make sense when:

• You need the money and don't have better options
• You plan to stay in the home long enough to justify the upfront fees (10+ years minimum)
• Preserving equity for inheritance isn't your priority
• The alternative is running out of cash in retirement

They don't make sense when you're planning to move soon, have access to cheaper financing like a HELOC or cash-out refi, or when the fees eat most of your available proceeds.

Compare Your Options

Not sure if the costs are worth it? Read Alternatives to a Reverse Mortgage in California to see what else is on the table. Or start with the basics in Reverse Mortgages in California: What They Are and Who They Fit.

Get a free cost breakdown for your situation

Better Offers Inc | CA DRE #01212512
Serving California seniors since 2011