A reverse mortgage on a $150,000 home
On a modest house, the costs of a HECM are a fixed share of the value but a larger bite of what you can borrow: here is that bite age by age, and where the fee floor starts to cost more.
Cash you can use in the first 12 months
$32,970
Then $25,980 more after month 12, growing at 6.49 % a year while unused.
| Factor at age 77, 6.625 % | 0.433 |
| Maximum claim amount | $150,000 |
| Principal limit (line 1) | $64,950 |
| Upfront MIP, 2 % (line 3) | $3,000 |
| Origination fee | $3,000 |
| Other closing costs | $0 |
| Mortgage paid off (line 5) | $0 |
| Mandatory obligations (line 10) | $6,000 |
| First-year limit (line 21) | $38,970 |
| Net principal limit (line 25) | $58,950 |
Expected rate 6.65 % (10-year Treasury + margin), read as 6.625 % in HUD's table. Estimate, not a loan offer.
| Year | Age | Loan balance | Unused credit line |
|---|---|---|---|
| 1 | 78 | $6,401 | $62,892 |
| 2 | 79 | $6,829 | $67,097 |
| 3 | 80 | $7,286 | $71,584 |
| 5 | 82 | $8,293 | $81,477 |
| 10 | 87 | $11,462 | $112,611 |
| 15 | 92 | $15,842 | $155,643 |
| 20 | 97 | $21,895 | $215,119 |
| 25 | 102 | $30,262 | $297,323 |
| 30 | 107 | $41,826 | $410,938 |
Worked out by Radif Partners · How we calculate · factors read on hud.gov · not a loan offer
A $150,000 home carries two charges of the same size on a HECM: $3,000 of upfront mortgage insurance, 2 % of the value, and up to $3,000 of origination fee, also 2 % at this value. Together, $6,000 is 4 % of the house, but a much larger share of what the loan can lend, because HUD's factor lends only part of the value. At an expected rate of 6.65 %, the principal limit is $49,200 at 62, so the charges take 12.2 % of it; at 92 it is $94,650 and they take 6.3 %. A 77-year-old owner with no mortgage can use $32,970 in the first 12 months and $25,980 more after that, or take about $433 a month for life. Below $125,000 of value the fee stops shrinking at its $2,500 floor, which makes the bite larger still.
Two charges of $3,000 each
A HECM (Home Equity Conversion Mortgage, the FHA-insured reverse mortgage) charges an upfront mortgage insurance premium (MIP) of 2 % of the maximum claim amount (MCA), which here is simply the appraised value. On $150,000, that is $3,000 (Mortgagee Letter 2017-12). The origination fee follows a separate formula, 2 % of the first $200,000 plus 1 % above it, within a floor of $2,500 and a cap of $6,000 (24 CFR 206.31). A $150,000 house sits entirely in the first band, so the most a lender may charge is also $3,000.
So the two charges are equal, and both scale with the value: 4 % of the house. On a larger home the fee grows more slowly and then stops at its cap, which is why the same two lines weigh less there. On a small one they stay at their full rate.
Neither charge has to be paid out of pocket. Both can be financed, which means they become the opening balance of the loan and grow with it. At a note rate held at 5.99 % plus 0.5 % of annual MIP, the $6,000 would have become about $11,462 after ten years, with $5,041 of interest and $421 of insurance added and no cash drawn. On a house of this size, that growth alone is a visible slice of the equity left to you or your heirs, and it is the price of opening the line even if you never use it.
The share of the loan the charges take, by age
The charges are computed on the value, but they are paid out of the principal limit, which is only a fraction of it. HUD's principal limit factor (PLF) for the youngest borrower's age and the expected rate sets that fraction (HUD factor table). At 6.65 %, read as 6.625 %, it goes from 0.328 at 62 to 0.631 at 92. The same $6,000 is therefore a heavy cut for a younger owner and a lighter one for an older owner.
| Age | Factor | Principal limit | Charges, share of it | First 12 months | From month 13 | Monthly for life |
|---|---|---|---|---|---|---|
| 62 | 0.328 | $49,200 | 12.2 % | $23,520 | $19,680 | $274 |
| 66 | 0.357 | $53,550 | 11.2 % | $26,130 | $21,420 | $309 |
| 69 | 0.381 | $57,150 | 10.5 % | $28,290 | $22,860 | $340 |
| 72 | 0.388 | $58,200 | 10.3 % | $28,920 | $23,280 | $358 |
| 75 | 0.415 | $62,250 | 9.6 % | $31,350 | $24,900 | $401 |
| 78 | 0.443 | $66,450 | 9.0 % | $33,870 | $26,580 | $452 |
| 81 | 0.473 | $70,950 | 8.5 % | $36,570 | $28,380 | $519 |
| 84 | 0.512 | $76,800 | 7.8 % | $40,080 | $30,720 | $616 |
| 88 | 0.566 | $84,900 | 7.1 % | $44,940 | $33,960 | $813 |
| 92 | 0.631 | $94,650 | 6.3 % | $50,790 | $37,860 | $1,208 |
The first-year column is 60 % of the principal limit minus the charges, because they count as obligations paid at closing. The monthly amount is the alternative: the net principal limit spread over the months to age 100, paid instead of the first two columns. If the expected rate rises, the factor falls while the charges, tied to the value, stay put, so their share of the loan grows in every row.
Under $125,000, the fee floor
Below $125,000 of value the 2 % formula would give less than $2,500, and the rule lets the lender charge the floor anyway. The insurance keeps falling with the value; the fee does not. The table shows how the combined share rises as the house gets cheaper.
| Home value | Origination cap | Upfront MIP | Both, share of value | Share of principal limit at 77 |
|---|---|---|---|---|
| $90,000 | $2,500 | $1,800 | 4.8 % | 11.0 % |
| $100,000 | $2,500 | $2,000 | 4.5 % | 10.4 % |
| $110,000 | $2,500 | $2,200 | 4.3 % | 9.9 % |
| $125,000 | $2,500 | $2,500 | 4.0 % | 9.2 % |
| $150,000 | $3,000 | $3,000 | 4.0 % | 9.2 % |
| $175,000 | $3,500 | $3,500 | 4.0 % | 9.2 % |
At $100,000, for instance, a 77-year-old has a principal limit of $43,300 and the two charges take 10.4 % of it, against 9.2 % at $150,000. A lender may accept a lower fee or none, and on a small loan that waiver is worth proportionally more.
The fee floor on your value
Highest origination fee allowed
$2,500
| Maximum claim amount | $115,000 |
| 2 % of the first $200,000 | $2,300 |
| 1 % above that | $0 |
| Formula result | $2,300 |
Third-party charges come out of the first year
Appraisal and title charges, among others, are not in the formulas above. They depend on your county and providers, so the only reliable figure is the one on the lender’s cost estimate. When they are financed, they join the obligations paid at closing. Under the 60 % rule, each dollar of them is a dollar less of first-year cash: with $2,000 of such charges, our 77-year-old would have $30,970 in the first 12 months instead of $32,970. On a $150,000 house that dollar is a larger part of the total than on a costlier one, which is why it is worth entering the real amount.
Add your closing costs
Cash you can use in the first 12 months
$31,470
| Factor at age 77, 6.625 % | 0.433 |
| Maximum claim amount | $150,000 |
| Principal limit (line 1) | $64,950 |
| Upfront MIP, 2 % (line 3) | $3,000 |
Our worked case: 77, a $150,000 house, paid off
At 77 the factor is 0.433, so the principal limit is $64,950. The two charges, $6,000, are 9.2 % of it. The first-year limit is $38,970, and after the charges $32,970 remains to use. The other $25,980 opens in month 13. Left untouched for ten years at a note rate held at 5.99 %, the line would offer about $112,611, while the balance, only the financed charges and their growth, would be near $11,462. Rates move, so read that as a size, not a promise.
A fixed-rate HECM pays a single advance at closing under the same first-year cap. For this owner, that is $32,970 in hand, and the remaining $25,980 of principal limit can never be drawn. On a small house that forgone amount is a large part of what the loan could offer; the lump sum page compares the two rate types, and the costs page lists every charge.