The short answer
On a $500,000 home, expect roughly $19,000 to $22,000 in total upfront costs. Nearly all of it can be financed into the loan rather than paid in cash — which is convenient and also means you pay interest on it for the life of the loan.
Upfront, itemised
| Cost | Amount | What it is |
|---|---|---|
| Initial mortgage insurance premium | 2% of the maximum claim amount | Paid to FHA, not the lender. This is what buys the non-recourse guarantee and the promise that your line of credit will be honoured even if the lender fails. The single largest cost, and the one doing the most work. |
| Origination fee | Capped: 2% of the first $200,000 plus 1% above, min $2,500, max $6,000 | The lender's compensation. Federally capped — nobody can charge more than $6,000. It is negotiable downward and sometimes waived on larger files. |
| Appraisal | $650–$1,200 | An FHA appraisal. Usually the only cost paid out of pocket, and the only money at risk if you stop. |
| Title, recording, settlement | $1,500–$3,500 | Title search, lender's title insurance, recording fees, attorney or settlement agent. Varies significantly by state — New York is at the higher end. |
| HUD counseling | $0–$200 | Paid to an independent HUD-approved agency, never to us. Often waived on hardship. |
Ongoing costs
| Cost | Amount | Notes |
|---|---|---|
| Annual mortgage insurance | 0.5% of the outstanding balance per year | Accrues onto the balance. Charged on what you have drawn, not the full principal limit — another reason a line of credit is cheaper than a lump sum. |
| Interest | Fixed or adjustable, on the drawn balance | Compounds. Nothing is paid monthly, so it accrues onto the balance and then accrues on itself. |
| Servicing fee | $0–$35/month | Most lenders no longer charge one. If yours does, ask why. |
The cost nobody itemises
Compounding. On a balance growing around 7%, the debt roughly doubles every decade. Borrow $200,000 at 70 and stay in the house to 90, and the payoff can approach $800,000. If the home appreciates at a similar rate, equity holds up. If it does not, the equity is largely gone — which is fine if you needed the money and intended to stay, and painful if you expected to leave the house to your children unencumbered. This is the honest downside of the product and it deserves a straight conversation, not a footnote.
Cost is not the same as rate
Everything above is what you pay to get the loan. What it costs to hold it is a separate question, and it turns on two different interest rates that most advertising conflates. The rates are explained here — including the one that decides how much you can borrow and never appears in an advertisement.
How to pay less
- Take a line of credit instead of a lump sum. Interest and annual MIP are charged only on what you have actually drawn. An untouched line costs you almost nothing and grows.
- Ask about lender credits. Accepting a slightly higher margin can offset some or all of the origination fee. Sometimes a good trade, sometimes not — have both quoted.
- Do not shop the note rate alone. The expected rate sets how much you can borrow; the note rate sets how fast the balance grows. A lender advertising a low note rate with a high margin can leave you with less money and a faster-growing balance.
- Get more than one quote. Origination fees and margins vary between lenders on identical files. This is the most reliable way to save four figures.
Before any of this matters
None of these numbers apply until you clear the basic requirements — age, occupancy, equity, and the financial assessment. Check whether you qualify first, then come back to what it costs.
When the cost is not worth it
If there is a real chance you will move within about five years, upfront costs of $20,000 have no time to earn back. Over a two-decade tenure they are a rounding error; over three years they are a bad deal. A HELOC, a conventional refinance, or simply downsizing will usually beat a reverse mortgage on a short horizon. The comparison is here.
What this estimate is, and what it is not
These figures are an illustration for planning only — not a loan offer, not a commitment to lend, and not a guarantee of what you will receive. Your real numbers depend on a completed appraisal, the expected interest rate on the day your FHA case number is assigned, your existing mortgage payoff, and a HUD financial assessment. A reverse mortgage is a loan that must be repaid, not a government benefit. You remain responsible for property taxes, homeowners insurance and upkeep, and the loan can become due if you stop meeting those obligations.