Key Takeaways
- HUD caps origination fees at $6,000, but lenders can charge less.
- You can often negotiate the origination fee by accepting a slightly higher interest rate.
- Shopping around and comparing Loan Estimates is the best way to get fees reduced.
\n\nWhile many aspects of a reverse mortgage, like the Initial Mortgage Insurance Premium, are strictly set by the federal government, the origination fee is an area where you have negotiating power. HUD sets a maximum limit on origination fees, but lenders are completely free to charge less than the maximum cap.
The HUD Maximum Cap
As a refresher, HUD caps HECM origination fees using a specific formula: - 2% of the first $200,000 of your home's value. - 1% of the value over $200,000. - With a hard maximum cap of $6,000.
If your home is worth $400,000 or more, the lender is legally allowed to charge you the maximum $6,000 fee. But just because they can doesn't mean they have to.
Strategies for Negotiating the Fee
Here are the most effective ways to lower or completely eliminate your origination fee:
1. The "Lender Credit" Strategy
The most common way to get an origination fee waived is to accept a slightly higher interest rate on your loan. This is known as receiving a "lender credit." The lender makes more money over the life of the loan via the higher interest rate, and in exchange, they cover your upfront origination costs. If you plan to stay in the home for a short period (under 5 years), taking the higher rate to eliminate upfront fees can be a very smart mathematical move.
2. Shop Multiple Lenders
Reverse mortgage lenders are highly competitive. Obtain quotes (specifically a document called a Good Faith Estimate or Loan Estimate) from at least three different lenders. If Lender A is charging a $6,000 fee and Lender B is charging $2,000, you can take Lender B's quote back to Lender A and ask them to match it.
3. Look for Promotional Periods
Many large national reverse mortgage lenders run promotions during certain times of the year where they will flat-out waive the origination fee to hit their quarterly sales quotas. Ask your loan officer directly if they have any upcoming fee waiver promotions.
The Bottom Line
Never accept a $6,000 origination fee without first trying to negotiate. Even a simple phone call comparing rates between two major lenders can often result in the fee being slashed by 50% or more.\n