Reverse Mortgage Insurance Premiums
All HECM reverse mortgage loans require reverse mortgage insurance premiums to be financed through the loan.
These insurance premiums are added to the Mutual Mortgage Insurance Fund to protect homeowners in the reverse mortgage program 🙂
- PROTECT LINE OF CREDIT AND MONTHLY PAYMENT PROCEEDS
The reverse mortgage offers the ability to put loan proceeds in a line of credit, or setup as a monthly payment. Both of these options are intended to be used in the future or as ongoing payouts.
The FHA reverse mortgage insurance premiums protect these future and ongoing payouts to ensure that you receive your money.
- PROTECT THE HOME
The FHA reverse mortgage insurance premium also protect the homeowners property in the even the loan balance is ever higher than the value of the home.
If this was to ever happen the homeowner has protection, so they can continue to live in the home for as long as they live.
The homeowners heirs are also protected. If they were to inherit the property the heirs will never owe more money than the value of the home. However, if their was still equity in the home then the heirs are eligible to refinance and keep the property, or sell and keep the remaining equity.
Initial Reverse Mortgage Insurance Premium
The initial reverse mortgage insurance premium, IMIP, is the fee that will be financed in the reverse mortgage loan.
The homeowner is not required to pay this reverse mortgage fee upfront or out-of-pocket.
This is a one time fee.
In the event a homeowner was to refinance their reverse mortgage into another reverse mortgage they would not need to pay what was initially paid either.
The initial mortgage insurance premium is calculated based on the appraised value, or maximum claim, whichever is lower.
The maximum claim amount caps at the FHA lending limit of $726,525.
If a property is appraised for over the FHA lending limit then for loan purposes the cap of $726,525 will be used.
Initial Mortgage Insurance Premium (Math)
FHA charges 2% on the appraised value, or maximum claim amount.
Whichever is lower.
Example: Let’s say that a homeowners appraised value is $350,000.
Your initial mortgage insurance premium in this scenario would be $7,000.
$350,000 x 2% = $7,000.
Example: In this scenario let’s assume that the appraised value is $850,000.
Since that appraised value is over the FHA lending limit of $726,525 the maximum claim would take effect since it is lower.
Your initial mortgage insurance premium in this scenario would be $14,530.50.
$726,525 x 2% = $14,530.50.
Find only the best reverse mortgage for you
Ongoing Reverse Mortgage Insurance Premium
The ongoing reverse mortgage insurance premium, MIP, is the rate that will be added to the interest rate.
This ongoing reverse mortgage insurance premium is locked at .50%.
This rate can never change, or be removed.
All HECM reverse mortgage loans are required to pay the .50% MIP regardless of the program.
This again is part of the FHA reverse mortgage insurance protections that allow this program to be secure for homeowners.
Ongoing Mortgage Insurance Premium (Math)
Remember the ongoing mortgage insurance premium is locked on all reverse mortgage loans at .50%.
Regardless of reverse mortgage program type or loan-to-value.
Example: Let’s say that a homeowners initial interest rate is 5%.
You would then add the .50% MIP.
Your total all-in rate would be 5.50%.
Do I Still Need My Standard Homeowners Insurance And/Or Flood Insurance Policies?
We wanted to take a quick moment and point out that homeowners are still required to have adequate homeowners insurance policy coverage.
With all the talk about FHA’s insurance requirements on the loan please know these do not protect the home in the event of an event.
That is what the standard homeowners insurance policy will protect.
In addition, if a homeowners property is located in a flood zone then adequate flood insurance will be required too.
Homeowners will be required to remain current on their homeowners insurance with no lapses in coverage.
Are The Reverse Mortgage Insurance Premiums Tax Deductible?
This question has been asked numerous times, so we thought to address it.
When speaking with a reverse mortgage advisor their specialty is finding the reverse mortgage program that works best for you!
This question is a tax question and should be left to the tax professionals.
Even if you speak with a reverse mortgage advisor and they have personal knowledge or insight into this matter we encourage you to also speak to your tax professional about this question.
In any even there might be more questions you have about the reverse mortgage insurance premiums.
We encourage you to use our ReverseAdvisors.org reverse mortgage advisor search.
It allows you to see top reverse mortgage companies and advisors that work in your state and might even specialize in your county.
ReverseAdvisors.org feels this is the best way for you to start to review your current reverse mortgage fees and costs available.