Reverse Mortgage Glossary
An origination fee is often charged by a HECM reverse mortgage lender to cover overhead and help pad the bottom line. There are a lot of people involved in making a reverse mortgage happen, so lenders often charge an origination fee to cover internal expenses for underwriting, loan processing, document preparation, funding, etc.
If you’re financing a home you already live in (meaning this isn’t a purchase loan), you typically won’t have to pay the origination fee out of pocket. Most lenders can just roll it into the new loan amount.
If you’re purchasing with a HECM reverse mortgage, you’ll need to pay any origination fee out of pocket along with your down payment and any other closing costs.
How Much Is the Origination Fee?
Origination fees can vary widely from lender to lender, but they’re usually calculated as a percentage of the home value. The most a lender can charge is the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the value over $200,000.
The most the lender can charge regardless of home value is $6,000.
Origination Fees Are Often Negotiable
Because origination fees are charged by the lender (as opposed to a third party, like appraisers, title companies, etc.), you may have some room for negotiation. Keep in mind that lenders make money off of the initial loan amount, so if your starting loan amount is really low, the lender may not have as much room to discount the origination fee.
However, if the starting loan amount is much higher (you’re paying off a large mortgage balance, for instance) the lender may be able to discount the origination fee or eliminate it altogether.
The worst your lender can say is no, so it doesn’t hurt to ask!