What a Reverse Mortgage Actually Costs
The fair criticism of reverse mortgages is that they are not free — and no one should pretend otherwise. So here is a plain accounting of what a reverse mortgage costs, so you can weigh it with open eyes.
The costs to understand
- Upfront costs — origination, an appraisal, title and, on a HECM, an initial mortgage-insurance premium. Many of these can be financed into the loan rather than paid in cash.
- Ongoing interest — interest accrues on the balance you have drawn. Because you make no monthly payments, that interest is added to the balance, which grows over time.
- An annual insurance premium on a HECM, which funds the non-recourse protection.
- Servicing and the usual property charges you would pay as any homeowner — taxes, insurance, upkeep.
The real trade-off
The honest trade-off is this: in exchange for cash now and no monthly payment, your loan balance grows and the equity left at the end shrinks. For a homeowner who intends to stay in the home and needs cash flow, that trade is often well worth it. For someone planning to move soon, the upfront costs rarely pay off. The math rewards a long stay.
Costs and benefits both scale with how long you keep the loan. The longer you will stay in the home, the more the no-payment benefit outweighs the upfront costs. Match the decision to your real plans, not a worst case you do not expect.