\n\nWhen reviewing the estimated costs for a reverse mortgage, you might notice a recurring charge called the Servicing Fee. While upfront fees like origination and title insurance make sense, many borrowers wonder why they need to pay an ongoing monthly fee just to keep the loan open.

What is Loan Servicing?

After your reverse mortgage closes, the original lender will often sell the loan on the secondary market. A "loan servicer" takes over the day-to-day management of your account.

Even though you aren't making monthly mortgage payments, the servicer still has a lot of ongoing administrative work to do. Their responsibilities include:

• Sending you monthly account statements.
• Disbursing your requested line of credit funds or monthly tenure payments.
• Monitoring your property tax and homeowners insurance payments to ensure you remain in compliance.
• Calculating and applying the ongoing interest and mortgage insurance premiums to your balance.
• Handling the eventual payoff and lien release when the loan becomes due.

The servicing fee compensates the company for these ongoing administrative duties.

How Much is the Fee?

HUD strict caps how much a servicer can charge for a Home Equity Conversion Mortgage (HECM). - For loans with an annually adjusting interest rate, the cap is $30 per month. - For loans with a monthly adjusting interest rate, the cap is $35 per month.

Many modern lenders actually waive the servicing fee entirely as a competitive feature, effectively rolling the cost into the interest rate margin. If you see a high servicing fee on your estimate, it is worth asking the lender if they have a "no servicing fee" option.

How Do You Pay It?

The servicing fee is designed so that it does not impact your monthly cash flow. You do not write a check for the servicing fee.

Instead, the $30 or $35 is simply added to your loan balance every month, just like the accrued interest.

The Servicing Fee Set-Aside

Because the fee is guaranteed to the servicer for the life of the loan, HUD requires lenders to create a "Servicing Fee Set-Aside" at closing.

The lender calculates the expected total cost of the servicing fee over your projected lifespan and "sets aside" that portion of your equity to guarantee the servicer gets paid.

For example, if your life expectancy is 20 more years, the lender might set aside $7,200 ($30 x 12 months x 20 years) from your available funds. This money is not a lump sum charge; it is simply a portion of your equity that is walled off and unavailable for you to withdraw. As the months pass, the $30 is deducted from the set-aside and added to your loan balance.\n