Lowest Cost Reverse Mortgage Options in 2023

October 26, 2023

Are you searching for the lowest-cost reverse mortgage?

A few short years ago, people were reading about how expensive reverse mortgages were, but that does not have to be the case currently.

Don’t get me wrong; HUD still charges an Initial Mortgage Insurance Premium based on the home’s value that can run as high as 2% for this one cost alone for the higher draws exceeding 60% of the available Principal Limit.

Depending on the part of the country in which you live, some of the necessary costs like title insurance and state and local fees can still run into the thousands of dollars. So, what’s the difference now, and how can I call this an “affordable alternative”?…

I’m glad you asked!

Mortgages are valued by lenders based on the initial draw that the borrower takes.

The pricing for lenders at this time is advantageous enough on the higher draws that we can often waive origination fees, give credits to borrowers to help pay their costs, and, in some cases, pay the entire up-front costs of their reverse mortgage (except the counseling fee which HUD will not allow lenders to pay for borrowers).

Most of the loans we are doing currently have no origination fees (many lenders charge up to $6,000 for this fee alone). This reduces the charges significantly, but since many also contain lender credits, we give the borrower’s money at closing to help pay the other costs.

Some borrowers question me and ask if a lender credit meant we just added the charge onto the loan balance or somewhere else. The answer to this is no. If we send you a proposal showing that we are giving you credit to pay costs, that is money we must pay to cover the expenses shown on the estimates.

Even if we give you credit to pay a cost, we must still disclose all costs in a transaction and who is paying it. So, if a loan has $10,000 in costs, we have to show you all of those costs, even if we give you a $10,000 credit to pay them.

How can we get your costs this low?

Because the pricing is good enough now that, as a direct lender, we can pay costs for borrowers when possible and keep the lights on! The pricing we receive when we sell loans in the secondary market will not always be enough to pay borrowers’ costs. And because we receive compensation based on the amount of the loan the borrower draws at closing, we cannot pay costs in all instances. But when we can, we will.

The bottom line is that borrowers can get a reverse mortgage and save thousands (and sometimes tens of thousands) of dollars now while the pricing is strong for these loans. We would encourage borrowers who have been on the fence about reverse mortgages or those who decided against it at some time in the past because they thought the initial costs were too high but wish they could get one to take another look now.

It costs nothing to request a proposal, and we don’t believe in badgering borrowers if you’re trying to decide. The loan must be right for you, and you don’t need us or anyone else constantly calling, emailing, and putting pressure on you to choose or act. If the loan is right for you and you want to proceed, we’re happy to help.

If you just aren’t sure or you are sure that it’s not suitable for your circumstances, the last thing you need is someone trying to pressure you to do something you don’t want to do. So, if you would like to see if a low or no closing cost reverse mortgage is possible, please let us know, and we will be happy to send you a proposal.

Closing Cost FAQs

What are the typical closing costs for a reverse mortgage?

The typical closing costs for a reverse mortgage loan will vary from state to state. For the FHA-insured HECM (Home Equity Conversion Mortgage), the mortgage insurance charged is 2% of the Property Value or Maximum Claim Amount ($1,149,825 for 2024), whichever is less. Origination Fees are capped at $6,000. All other fees for Appraisal, Title Insurance, Recording, etc., will depend on the state you live in and the value of your home. You must obtain a proposal from a reverse mortgage lender to determine these various costs.

What is the least expensive reverse mortgage?

Regarding closing costs, Proprietary or Jumbo Reverse Mortgages usually have the lowest closing costs because HUD does not insure them and, therefore, does not have the 2% mortgage insurance charge. However, there are instances where costs can be reduced on the HECM program via a lender credit depending on the interest rate and other factors. To determine the lowest cost option for your scenario, you must obtain a proposal from a reverse mortgage lender.

Are closing costs on a reverse mortgage deductible?

As a reverse mortgage lender, we cannot provide tax advice as we do not have the required licensing. We recommend that all customers seek guidance from their trusted tax professionals.

What is the current interest rate for a reverse mortgage?

The interest rates for a reverse mortgage are subject to change regularly as they are with traditional loans. Many rate options and product types exist, including fixed and adjustable rates. You would need a proposal from a reverse mortgage lender to get a quote of the current rate options available.

What is the maximum origination fee for a reverse mortgage?

The maximum origination fee for a reverse mortgage depends on your home value and the product you are going with. On the HECM (Home Equity Conversion Mortgage), the formula is 2% of the first $200,000 in property value and 1% of every dollar after up to a ceiling of $6,000. For a Proprietary or Jumbo Reverse Mortgage, the Origination Fee cap as of December 2020 is $10,000 for Line of Credit Products and as high as 2% of your loan amount on specific Fixed Rate options.

ARLO recommends these helpful resources:

Here’s How a Reverse Mortgage Works – By ARLO (2023)

America's #1 Rated Reverse Lender Celebrating 19 Years of Excellence.

TALK TO OUR HUMAN EXPERTS TOLL FREE: 800-565-1722

LAUNCH REVERSE MORTGAGE CALCULATOR

6 Comments on this Article

Brenda B.
October 6th, 2022

Hi Arlo,

We have been looking to get a reverse mortgage and have been dealing with AAG. I think some of the charges they are listening is outrageous. We own a home worth around $500,000. We owe about $139,000.00. They are proposing a mortgage for $180,000.00. Closing cost of $23,000.00. After paying off our house we are left with $40,000.00 with $10,000.00 disbursed at closing and the remaining balance in 13 months. I was expecting something way different. Can you review and let me know if we should look otherwise. Your article was very informative which is why I am writing you.
Reply to Brenda
- ARLO™
  October 12th, 2022
  
  Hello Brenda,
  
  It always pays to get a second opinion! The HUD HECM reverse mortgage is the same no matter what lender you go to as far as the legal documents are concerned, but the lender sets the rates and fees that they charge. One big factor for the rates is the Margin because that margin will determine both the interest rate at which you start accruing interest and just as importantly, will determine how much money you will receive when it is used to decide the Expected Rate.
  
  If the lender you are going through has a high margin, then you will receive less money in the loan based on the HUD program parameters (and having a celebrity spokesperson must be paid for somehow). We would be happy to have you (or anyone else for that matter) check our calculator to see what you might expect with a reverse mortgage from a company with no celebrity spokespersons to pay. It's quick, easy, there is no obligation, but you may find several benefits by shopping around.
  The possible benefits are lower costs, less interest over the life of the loan and more money available to you if you find that there are lower margins and costs available. It really doesn't make sense not to spend a couple of minutes to compare and if you still have questions, we would be happy to look at both proposals and give you an honest assessment of the comparison.
  Reply to ARLO
Gary W.
April 4th, 2019

Can we use a reverse mortgage for a short-term plan only? Such as 2-3 years and then sell our home. Recently retired and the mortgage payment is too high to be sustainable over a long period without draining our 401k
Reply to Gary
- ARLO™
  April 4th, 2019
  
  Hi Gary,
  
  Yes, you can, but the loan was not intended for a short-term solution. Between the HUD mortgage insurance and the costs to originate the loan, the costs are higher, and it is by keeping the loan for a long time and spreading out the initial costs over time that the loan begins to make sense. I often tell folks that they may want to look to family members and see if they can fund a reverse mortgage of their own within the family. It might be a win/win situation if they can make a better rate of return than the banks are paying them on their savings, and you do not have to pay for the initial set up costs.
  
  Having said that. If this is not possible, there are also a few other things that are possibilities that you may want to research. Normally, the best rates and margins will allow borrowers to pay the least overall cost in the long run when you consider the interest accrued. However, if you are sure you will not have the loan more than two or three years before a certain event (retirement and move, etc.), then you may want to look for a higher rate/margin and lower fee option to lower your costs.
  This would lower the amount of the reverse mortgage funds available to you in your Available Loan Amount as your interest rate is one of the factors that determines your Loan Amount or Principal Limit, but if this does not matter to you, it might benefit you to limit the amount you receive to trade for lower costs.
  The interest will also accrue at a higher rate, but again, if you know you will not have the loan for more than 3 years at the longest, have the Amortization Schedules run both ways (higher fees and lower rates as well as lower fees and higher rate/margin then compare which costs you more both at the start and at payoff in 3 years to see which is really the better deal for you. There is never a prepayment penalty so it is just a straight comparison of what will be the biggest total outlay of cash to borrow the funds.
  Reply to ARLO
Joe
December 11th, 2015

Paying borrower costs is a great tool for the lender and terrific benefit to the customer. As a HECM counselor I see way to many lenders not giving an inch when it comes to fees to the borrower.
Reply to Joe
- ARLO™
  December 21st, 2015
  
  Hi Joe,
  
  I wish more borrowers would talk to people like yourself before they commit and close loans at costs higher than they need to. We hear borrowers tell us that they are told by some loan originators that the proposals they received from companies like ours in which we were not charging all the costs or paying the costs, just don't really exist or are too good to be true all the time. They use scare tactics and convince borrowers to pay thousands and thousands of dollars more than they need to in order to close their loans.
  
  Our testimonials are full of borrowers who will tell you first hand that they were told that we could not close the loan at the terms we gave them. As a counselor, I'm sure you see it over and over again - borrowers paying much higher fees. We keep our costs down and we pass that saving on to the consumer. I just wish more borrowers would do the research and see just how much money they can save and maybe more of those lenders you refer to would also be forced to be a little more aggressive with their pricing as well!
  Reply to ARLO

LOWEST-COST REVERSE MORTGAGE.

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