On a Home Equity Conversion Mortgage, the lender’s origination fee is capped by federal rule between $2,500 and $6,000. The exact amount comes from a two-tier formula tied to your home’s value, and many lenders charge less than the cap or waive the fee entirely to win your business. So the HECM origination fee you actually pay depends on both the math and how hard you shop.
How the Fee Is Calculated
Every calculation starts with the Maximum Claim Amount, or MCA. That’s the lower of your home’s appraised value or the national FHA lending limit for a single-family home.1eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance For most borrowers, the MCA is simply the appraised value, because the FHA limit sits well above typical home prices.
The formula applies two rates to the MCA:
- 2% on the first $200,000
- 1% on any amount above $200,000
Whatever that produces is then checked against the federal floor of $2,500 and ceiling of $6,000. The regulation at 24 CFR 206.31 sets both limits, so the lender can never charge less than $2,500 or more than $6,000 regardless of what the formula spits out.2eCFR. 24 CFR 206.31 – Allowable Charges and Fees
What the Math Looks Like at Different Home Values
A $100,000 MCA produces $2,000 from the formula (2% of $100,000). That’s below the floor, so the lender can still charge up to $2,500.
A $300,000 MCA produces $5,000: $4,000 on the first $200,000, plus $1,000 on the next $100,000.
At an MCA of $400,000, the formula hits exactly $6,000, and that’s the ceiling. From there on, the fee doesn’t rise. A borrower with a $900,000 home pays no more in origination charges than one with a $400,000 home, assuming both lenders charge the maximum.
Lenders Can Charge Less Than the Cap
The rule ceiling is not a price tag. The regulation says outright that a lender “may accept a lower origination fee.”2eCFR. 24 CFR 206.31 – Allowable Charges and Fees Many HECM lenders compete by discounting the fee or waiving it entirely, sometimes in exchange for a slightly higher interest rate through a lender credit.
This is where shopping matters. The HECM program itself is standardized by FHA, so the loan documents and insurance terms are identical from one lender to the next. Rates, margins, and fees are where the differences show up. Getting quotes from two or three lenders lets you compare origination charges side by side, and it gives you room to ask one lender to match another’s number. A borrower who assumes every lender charges the maximum leaves real money on the table.
Paying Cash or Rolling the Fee Into the Loan
You can pay the origination fee in cash at closing, or you can finance it into the loan balance. The regulation permits the fee to be “fully financed with the mortgage.”2eCFR. 24 CFR 206.31 – Allowable Charges and Fees Most HECM borrowers do exactly that, because the whole point of the product is to draw on home equity without out-of-pocket cost.
Financing has a long-term price, though. On a reverse mortgage, interest compounds monthly on the entire balance, including any fees rolled in at closing. A $5,000 origination fee doesn’t stay $5,000. It accrues interest, and that interest accrues more interest.3Consumer Financial Protection Bureau. How Much Does a Reverse Mortgage Loan Cost? The longer you hold the loan, the more that original fee costs you in the end. Paying cash at closing avoids the compounding altogether. If you have the funds available, it saves money over the life of the loan.
Refinancing a HECM Means a Second Origination Fee
If you already have a reverse mortgage and refinance into a new one, the new lender can charge a fresh origination fee, calculated the same way and capped at the same $6,000. Because that creates a clear incentive for unnecessary refinances, the rules require the lender to disclose the total cost of the refinance, including the new origination fee and upfront mortgage insurance premium, alongside the estimated increase in your principal limit.4eCFR. 24 CFR 206.53 – Refinancing a HECM Loan
The regulation does credit part of the upfront mortgage insurance premium you already paid on the original loan, so you’re not charged the full MIP twice. No equivalent credit applies to the origination fee. The new lender can charge the full formula amount on the new loan’s MCA.4eCFR. 24 CFR 206.53 – Refinancing a HECM Loan
Where You’ll See the Fee in Writing
HECMs are exempt from the Loan Estimate and Closing Disclosure forms that apply to most other mortgages. Instead, the lender must send you a Good Faith Estimate within three business days of receiving your application, and it itemizes the origination charge along with other estimated closing costs.5Consumer Financial Protection Bureau. 12 CFR Part 1024 Regulation X – Section 1024.7 Good Faith Estimate The final numbers show up at closing on a HUD-1 Settlement Statement. The origination fee on the HUD-1 cannot exceed the amount on the GFE, so the lender can’t inflate the charge between application and closing. Check both documents against the formula to confirm what you’re being asked to pay.
Don’t Count on a Tax Deduction
The IRS treats origination fees as a form of mortgage points, and on standard purchase loans those points can sometimes be deducted in the year you pay them. Reverse mortgages work differently. Interest accruing on a HECM is generally treated as home equity debt interest and is not deductible.6Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction Because you make no monthly payments, the interest and any financed origination fee treated as prepaid interest isn’t considered paid until the loan is satisfied, which is usually when you sell the home, move out, or die. A tax advisor familiar with reverse mortgages can tell you whether any portion becomes deductible at that point under the rules in effect then.