Quick Answer
The annual ongoing cost of a HECM reverse mortgage consists of accruing interest (approximately 6.38% to 7.13% of the outstanding balance in 2026) plus the annual FHA MIP (0.5% of the outstanding balance) — totaling approximately 6.88% to 7.63% of the outstanding balance added to the loan each year without requiring a cash payment.
- Annual interest: approximately 6.38% to 7.13% on the outstanding balance (2026 adjustable HECM).
- Annual FHA MIP: 0.5% of the outstanding balance — accrues monthly.
- Total annual accrual rate: approximately 6.88% to 7.63% of outstanding balance.
- No cash payment required — all accrual is added to the loan balance.
- The same rate drives the line of credit growth on unused balances.
- On a $200,000 outstanding balance, approximately $13,760 to $15,260 accrues per year.
Key Facts
| Topic | Key Fact |
|---|---|
| 2026 adjustable HECM accrual | ~6.38% to 7.13% (interest + annual MIP) |
| Annual MIP component | 0.5% of outstanding balance |
| Annual interest component | ~5.88% to 6.63% of outstanding balance (index + margin) |
| Fixed HECM accrual | ~7.56% to 7.93% (interest + MIP) |
| LOC growth rate | Same as the accrual rate — ~7% on unused balances |
| Balance growth example | $200K balance: ~$13,760 to $15,260 added per year |
| Inflation comparison | Accrual rate vs California home appreciation rate |
| No payment required | All accrual added to balance — no cash outflow |
Detailed Explanation
The annual ongoing cost of a HECM is expressed as a balance growth rate rather than a monthly payment — because there is no monthly payment required. Instead, interest and MIP accrue to the outstanding loan balance each month, compounding over time. The effective annual accrual rate — the total percentage added to the outstanding balance each year — is approximately 6.88% to 7.63% for an adjustable-rate HECM in the 2026 rate environment.
The accrual rate has a dual significance: it is both the cost of the outstanding balance (money already drawn) and the growth rate of the available line of credit (money not yet drawn). A borrower with a $200,000 outstanding balance and a $100,000 unused line of credit is simultaneously experiencing $13,760 to $15,260 added to the outstanding balance each year (the cost) and $6,880 to $7,630 added to the available line of credit each year (the benefit). Net cost equals the accrual on the outstanding balance minus the growth on the unused balance.
Comparing the accrual rate to California home appreciation is the most relevant long-term financial context. A HECM with a 7% effective accrual rate on a California home that appreciates at 5% per year sees the loan balance growing faster than the home value — reducing equity over time. A home that appreciates at 7% or more keeps pace with the loan balance, with equity remaining approximately stable. California's long-term historical appreciation rate (approximately 5% to 7% annually) means many California borrowers see relatively stable or slowly declining equity positions rather than rapidly eroding equity.
The ongoing cost can be contextualized against the alternative. A borrower who is making a $1,500 per month conventional mortgage payment has an annual cash cost of $18,000 in mortgage payments — money that leaves their bank account each year. The HECM's $13,760 to $15,260 in annual balance accrual on a $200,000 outstanding balance is a non-cash cost (accrues to the balance, not paid from income) that may be meaningfully lower than the eliminated mortgage payment. The cash flow improvement — $18,000 per year freed by eliminating the payment — can significantly outweigh the balance accrual cost.
Jay Zayer, CRMP — 18 Years Experience
The ongoing cost conversation is the one I have most carefully — because the accrual rate sounds large when expressed as a percentage of the outstanding balance ($13,760 on $200,000) but small when compared to the cash flow benefit it replaces ($1,500 per month in mortgage payment = $18,000 per year). I put both numbers on paper: here is what the loan costs you per year in accrual. Here is what you save per year in eliminated payment. For most California borrowers with a significant existing mortgage, the net financial benefit in the first several years is clearly positive.
Who This Is Right For
This may be a good fit if:
- Every reverse mortgage borrower who wants to understand the ongoing cost after closing
This may NOT be the right fit if:
- There is no situation where understanding the ongoing cost would be inappropriate
Common Misconception
Myth: The reverse mortgage's ongoing cost is just the interest rate shown at closing.
Fact: The effective accrual rate includes both the interest rate and the annual MIP — approximately 0.5% added to the interest rate for the total annual balance growth rate.
Source: HUD HECM program guidelines; CFPB
Authoritative Sources
- HUD: HECM interest accrual — hud.gov
- CFPB: Reverse mortgage ongoing costs — consumerfinance.gov
- NRMLA: Total Annual Loan Cost (TALC) — nrmlaonline.org
People Also Ask
How fast does the reverse mortgage balance grow each year?
At approximately 6.88% to 7.63% of the outstanding balance per year (interest + 0.5% annual MIP) in the 2026 rate environment. On a $200,000 balance, approximately $13,760 to $15,260 per year.
Does the reverse mortgage balance keep growing forever?
The balance grows until the loan is repaid — either through voluntary payoff, home sale, or the borrower's permanent departure. The non-recourse guarantee ensures the balance can never exceed the home's value at repayment from the borrower's or heirs' personal resources.
Is the ongoing cost of a reverse mortgage higher than a conventional mortgage?
The HECM's accrual rate (approximately 7%) applies to the outstanding balance only. A conventional mortgage payment represents both principal and interest — but includes an annual cash cost that the HECM eliminates. The right comparison depends on each borrower's specific situation.