Reverse Mortgage Origination Fee: The HUD-Capped Formula and Worked Math

HUD caps the HECM origination fee by formula: 2% of the first $200,000 of the maximum claim amount, plus 1% of the amount above $200,000, with a hard ceiling of $6,000 and a floor of $2,500 (24 CFR §206.31). Unlike a forward mortgage, where origination charges are open-ended, the reverse mortgage origination fee cannot exceed $6,000 no matter how valuable the home, and it cannot drop below $2,500 even on a modest home. The fee is the lender's charge for processing and originating the loan, it is separate from the FHA mortgage insurance premium, and it is almost always financed into the loan. A reverse mortgage is a loan, not a government benefit, and this is the one large cost where federal rule directly limits what the lender can charge.

Last reviewed 2026-06-01

This guide gives the exact formula, works it on several home values, explains the floor and ceiling, and covers what the fee can and cannot include. The full closing-cost picture, with every other line item, is in the reverse mortgage closing costs guide.

How is the origination fee calculated?

The origination fee is computed on the maximum claim amount, the lesser of the home's appraised value and the FHA HECM lending limit of $1,249,125 for 2026 case numbers (HUD ML 2025-22). The formula is:

• 2% of the first $200,000 of the maximum claim amount, plus
• 1% of any amount above $200,000,
• subject to a $6,000 ceiling and a $2,500 floor.

Because of the ceiling, the fee stops rising once the maximum claim amount reaches $625,000. At that point, 2% × $200,000 ($4,000) plus 1% × $425,000 ($4,250) would be $8,250, but the cap holds it at $6,000. Above a $625,000 home, the origination fee is flat at $6,000 regardless of value.

What does the fee come to at different home values?

The formula produces these figures across a range of home values:

| Maximum claim amount | Raw formula | Fee charged | |---|---|---| | $80,000 | 2% × $80,000 = $1,600 | $2,500 (floor) | | $150,000 | 2% × $150,000 = $3,000 | $3,000 | | $200,000 | 2% × $200,000 = $4,000 | $4,000 | | $400,000 | $4,000 + 1% × $200,000 = $6,000 | $6,000 | | $625,000 | $4,000 + 1% × $425,000 = $8,250 | $6,000 (ceiling) | | $1,000,000 | $4,000 + 1% × $800,000 = $12,000 | $6,000 (ceiling) |

The floor catches small loans: a borrower with an $80,000 home would owe only $1,600 on the raw formula, but the $2,500 floor applies, so the fee is $2,500. The ceiling catches large loans: any home at or above $625,000 of maximum claim amount pays exactly $6,000. In the middle band, the fee tracks the formula.

Why do the floor and ceiling exist?

The ceiling protects high-value borrowers from a fee that would otherwise scale without limit, the way a forward-mortgage origination fee can. On a $1 million home, an uncapped 1%-style fee would run $12,000; HUD holds it at $6,000. The cap is a deliberate consumer protection that recognizes the lender's actual cost to originate does not rise proportionally with home value.

The floor protects lenders on small loans, where 2% of a low maximum claim amount would not cover the cost of originating the loan. Without the $2,500 floor, lenders would have little incentive to write small HECMs, and borrowers with modest homes would have fewer options. The floor keeps the small-loan market viable.

What does the origination fee cover, and what does it not?

The origination fee compensates the lender for taking the application, processing the file, and originating the loan. It is the lender's charge, and it is the line item a borrower can sometimes negotiate, a lender may reduce or waive the origination fee as a competitive concession, though it can never exceed the HUD cap.

The origination fee does not include:

• The FHA mortgage insurance premium, the 2.0% upfront and 0.5% annual MIP, which goes to FHA, not the lender, and is covered in the MIP guide.
• Third-party charges such as the appraisal, title insurance, recording fees, and the counseling fee, which go to the parties providing those services, not the lender.

A borrower shopping lenders should compare the origination fee directly, since it is the most negotiable large cost. The MIP and third-party fees are largely fixed across lenders; the origination fee is where price competition actually happens.

How does it fit the total cost?

On a $400,000 home, the origination fee hits the $6,000 ceiling, making it the second-largest closing cost after the $8,000 upfront MIP. Together those two federal-rule items dominate the cost of opening a HECM. The full breakdown, including how much is financeable, is in the reverse mortgage closing costs guide. To see the fee netted against a specific home value and age, run the reverse mortgage calculator.

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