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Mortgage Insurance Premium

 

What is it and why do I have to pay it??

If you obtain an HUD/FHA insured reverse mortgage, you will pay a mortgage insurance premium to HUD. The premium will be equal to the lesser of 2.00% of the appraised value of your property or the maximum HUD/FHA loan amount in your county, whichever is less.

In addition to the up-front premium, you also pay a ½ % annual premium to HUD/FHA on the outstanding principal balance of your reverse mortgage.

 

What do you get for the money you are spending??

1. 1. HUD/FHA insures your reverse mortgage benefit. No matter what happens to the value of your home and no matter how long you live, your benefit is guaranteed to be paid by an agency of the United States government.
   
2. You receive better loan terms than would be available without the HUD/FHA guarantee. The current interest rate is at 1.50% above the one-year Treasury Index. That is substantially below the rate offered on conventional reverse mortgages.
   
3. A non-recourse loan: you can never owe more than your home is worth when your loan is repaid. This important protection insures you that your heirs will never be liable for any amount owing on your reverse mortgage once you have passed on — no matter how long you live, how much you owe, or whether your home value goes up or goes down. If the amount owing on your reverse mortgage exceeds the home value, HUD/FHA agree to accept title to your property in full satisfaction of your reverse mortgage. The remainder of your estate will pass to your heirs without regard for the reverse mortgage.
   
4. Without HUD/FHA insurance, there probably would be no Reverse Mortgage program available; or the program would be so restrictive in its terms that few seniors would qualify. While it may be irksome to pay for the mortgage insurance premium, it’s what makes the program viable to the institutions that offer reverse mortgages.

There are alternative reverse mortgages that do not have the HUD/FHA insurance. We suggest that you compare the potential benefits available from these programs before settling on the HUD/FHA version. If the available benefits from one of these programs are adequate, you could save a substantial amount in closing costs.