Reverse mortgage costs are heavily regulated by HUD and FHA. Origination fees are capped. Mortgage insurance is fixed by statute. Closing costs look similar to a conventional mortgage. Nothing is hidden, but the line items can feel confusing. Here's exactly what you'd pay on a real Orange County HECM.
The example: $1,000,000 home in Dana Point
Borrower age 75. No existing mortgage. HECM, taking the maximum line of credit. All figures approximate at current rates — your actual statement will reflect the exact rate sheet on the day your application is locked.
One-time closing costs (paid at funding)
- Origination fee — about $6,000. HUD caps this at 2% of the first $200K of home value, plus 1% above that, with a $6,000 maximum.
- Initial mortgage insurance premium (IMIP) — $20,000. Exactly 2% of home value (or FHA lending limit, whichever is lower). Paid to FHA. This is what makes your loan non-recourse and protects you and your heirs.
- Title insurance, escrow, appraisal, recording — about $4,500. Same line items as any home purchase or refinance.
- HUD counseling fee — $125–$200. Paid to the independent counselor. Some counselors waive based on income.
Total one-time closing costs on a $1M home: roughly $30,000. These can be financed into the loan rather than paid out of pocket.
Ongoing costs (over the life of the loan)
- Interest accrual. The loan balance grows over time at the expected rate (currently in the 6% range for HECM). You don't pay this in cash — it accrues against your equity.
- Annual mortgage insurance premium — 0.5% of the loan balance per year. Also accrued, not paid in cash. Continues to fund FHA's non-recourse guarantee.
- Property taxes, homeowners insurance, HOA — you pay these directly just like any homeowner.
- Servicing fee — $0 to $35/month. Most modern HECMs have eliminated this fee entirely.
What this actually feels like
The $30,000 in closing costs is real money — usually financed into the loan rather than paid in cash. The borrower ends day one with a $970,000 home and approximately $470,000–$500,000 in accessible proceeds (depending on payout option). Over time, accrued interest and MIP grow the loan balance, and home value typically appreciates — net equity at the eventual sale depends on which moves faster.
How costs compare to alternatives
Closing costs on a reverse are 2–3x higher than a HELOC mostly because of the FHA mortgage insurance. That MIP is also the reason a reverse can never become a generational debt — it's insurance you're buying for yourself and your heirs. For long-time horizons it's typically worth it. For short-term liquidity needs, a HELOC's lower closing costs often win.
What we walk you through
Every Lyon House client gets a full TIL (Truth in Lending) and Good Faith Estimate before closing, line by line, in plain English. The HUD-required counseling session also goes through each cost. You shouldn't sign anything you can't explain back to a family member.