Reverse Mortgage Insurance Explained (2022 Update)

March 22, 2022 By Michael Branson 48 comments

A federally-insured reverse mortgage comes with the assurance that as the borrower you will receive certain loan payments as agreed upon by the terms of your loan.

What’s more, you or your heirs will never be forced to repay more than your home is worth to pay off the loan regardless of the balance of the loan.

Those benefits are guaranteed by the Federal Housing Administration through its Home Equity Conversion Mortgage program, which includes the vast majority of reverse mortgages out there.

In order to receive that guarantee, borrowers pay for it through the reverse mortgage insurance premiums.

The first is a one-time insurance payment that is made upfront, and the other is an annual insurance premium that is paid to the FHA.

Recent Changes

At the end of August 2019, the U.S. Department of Housing and Urban Development unveiled some changes to its reverse mortgage program.

An important part of the changes included a new cost structure for reverse mortgage insurance that is required of all borrowers who have federally-insured Home Equity Conversion Mortgages.

HECM borrowers basically buy into this insurance through an upfront fee and an ongoing fee.

And like other forms of insurance, there comes with it some very important protections and benefits.

Upfront Mortgage Insurance Premiums

The first insurance cost that borrowers face is an upfront mortgage insurance premium.

This “MIP” is a flat 2% premium based on the amount the maximum lending limit of $970,800 or your home’s appraised value, whichever is less.

Ongoing Mortgage Insurance Premiums

Ongoing MIP rates are currently 0.5% of the outstanding loan balance, accrued annually and paid for when the loan is due.

Typically, mortgage insurance is designed to protect the lender in case a borrower defaults on his or her loan.

But in the case of a reverse mortgage, there are some even greater benefits specifically geared toward the borrower.

What Does Reverse Mortgage Insurance Provide?

Reverse mortgage insurance offers several important protections for borrowers.

In fact, these protections are typically even greater for reverse mortgage borrowers than for borrowers who have mortgage insurance through other FHA loan programs.

That’s because they offer several key provisions, including the reverse mortgages “non-recourse feature”.

Loan proceeds are guaranteed

Reverse mortgage borrowers can opt to receive their loan proceeds as a lump sum, as a line of credit, or in ongoing installments.

Reverse mortgage insurance guarantees that these loan proceeds will be disbursed to the borrower as agreed upon under the terms of the loan.

Even if the lender goes out of business, the loan proceeds are still guaranteed.

Similarly with a line of credit, the lender cannot cancel or freeze the line of credit when this insurance is in place.

Non-recourse protection

The balance on a reverse mortgage loan grows over time because there are no payments required from the borrowers while they live in the home.

This is opposite of a forward home loan for which the borrower pays the balance down over time by making monthly payments.

As you can imagine, in some cases the loan balance on a reverse mortgage might even be greater than the value of the home itself after growing for many years with no payments by the borrower.

Reverse mortgage insurance comes with a cost, but the benefits are substantial too.

If you are considering a reverse mortgage, it is important to understand the role that the mortgage insurance plays in the reverse mortgage process.

The insurance protects all parties in the transaction including the borrower, the lender, the borrower’s heirs and the investors who buy the securities backed by the loans.

The insurance makes the program possible for borrowers.

Insurance FAQs

Why is there mortgage insurance on a reverse mortgage?

On the HECM reverse mortgage program, the government charges mortgage insurance premiums in order to provide the guarantee of a non-recourse loan. If at time of loan maturity, the balance of the reverse mortgage exceeds the value of the home the mortgage insurance fund will cover the loss incurred on that loan.

Do all reverse mortgage loans require mortgage insurance?

No. The HECM reverse mortgage program has mortgage insurance premiums, but there are Non-FHA programs available in the market for certain scenarios and those programs do not have mortgage insurance.

Who insures reverse mortgages?

The HECM reverse mortgage program is insured by the Federal Government through the FHA.

How much is the mortgage insurance premium?

On the HECM program as of Jan 2022 the initial mortgage insurance premium charged is 2% of the property value or max claim (whichever is less). The current max claim is $970,800. The mortgage insurance renewal is 0.50% charged annually on the outstanding balance of the loan.

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About the Author, Michael G. Branson | Mike@allreverse.com

Michael G. Branson CEO, All Reverse Mortgage, Inc. and moderator of ARLO™ has 40 years of experience in the mortgage banking industry. He has devoted the past 17 years to reverse mortgages exclusively.

48 Comments on this Article

Adrienne
March 24th, 2022

Hello Arlo,

I have an existing Reverse Mortgage that is changing over to a new lender. This lender has sent me a list of fees, i.e., occupancy inspection fee, preservation inspection fee, repair inspection fee, which fees can cost me up to $5,000 each. I have never received anything before like this lender. I have not defaulted on any of my terms. Who can I speak to, to find out if this is legitimate and what I can do?
Reply to Adrienne
- ARLO™
  March 29th, 2022
  
  Hello Adrienne,
  
  I have never heard of such fees and in these amounts before for inspections. I would contact the lender directly and request an explanation of these fees before you do anything. If you are not happy with their explanations, then contact HUD if you do not feel you are getting a legitimate answer.
  They may be giving you fees that could be charged under certain circumstances and based on issues they uncover or there may be some other misunderstanding but if they are telling you that they are just going to start charging you these fees at this time, I would not agree that these are reasonable fees and would recommend that you contact an attorney, possibly the Consumer Financial Protection Bureau, AARP as they help seniors and the National Reverse Mortgage Lenders Association to ask for their assistance. I do not believe there are any places in your original documents that state a lender can charge you fees for inspections in these amounts.
  
  Lenders can charge reasonable fees for services performed and I think if they are telling you that if they need to do something to preserve the property those costs might run higher based on the work needing to be done, that might be just a misunderstanding. And typically, I would think that the new lender is only letting you know that there are different inspections that may be required based on certain circumstances but those would not even be needed in all cases.
  But an inspection is not something that costs the lender a lot of money so I would be very surprised if the inspections alone are what they are saying is what could cost this much and I really think you should contact them first to discuss. You can always decide if you need to take further action later if you do not get the answers to all your questions.
  Reply to ARLO
Norman C.
January 11th, 2022

Hi Arlo,

On my reverse mortgage I did not take out any funds. Why am I still paying a MIP? My line of credit was and is at a $0 balance.
Reply to Norman
- ARLO™
  January 11th, 2022
  
  Hello Norman,
  
  The initial balance starts with any fees you pay to get the loan plus any amounts needed to pay off any existing loans or liens on the property at that time. You cannot even have a zero balance with a verse mortgage as the loan cannot remain open with a zero balance.
  There are two times you pay mortgage insurance on a reverse mortgage. There is the upfront premium and the annual renewal. The up front premium is what is combined with any other initial loan that total the balance owed that you see on your statements and is the balance that is the basis upon which the mortgage insurance is accruing if you had no mortgages to pay off.
  
  You can pay down the balance of the fees you started with at any time if you wish but remember, you cannot pay them down to zero or the loan would be closed. The interest and mortgage insurance accrual on a modest balance of $500 or $1,000 balance would be very minimal and well worth keeping the loan active if you want the loan to stay open for the future.
  Reply to ARLO
Russell H.
September 12th, 2021

Our house was not habitable because of hurricane ida, what happens to our reverse mortgage if we cannot live in our house anymore?
Reply to Russell
- ARLO™
  September 22nd, 2021
  
  Hello Russell,
  
  Just as with any loan, your insurance would pay its claim payment to both you and the lender. The claim would hopefully be used to make the needed repairs to make the property habitable once again. In some instances, the property may never be habitable again. This is especially true with the land itself undergoes some catastrophe that renders it unbuildable such as a sink hole, landslides, earthquakes, etc.
  If it just takes longer to rebuild, your lender and HUD will work with you to get you back into your home. If the home can never be rebuilt due to the nature of the damages, the insurance proceeds would be first applied to pay off the loan balance and any remaining funds (along with the property) would be yours to use as you see best.
  Reply to ARLO
Veronica
August 2nd, 2021

What does UFMIP used for?
Reply to Veronica
- ARLO™
  August 2nd, 2021
  
  The UFMIP stands for the Up-Front Mortgage Insurance Premium. HUD Home Equity Conversion Mortgage (HEMC) reverse mortgages are insured by FHA and therefore have the full faith and credit of the government backing the loans.
  They insure the borrower, the borrower's heirs, the lender and anyone who buys the securities that are sold that use the mortgages as collateral. It's what allows borrowers to be sure that they always receive their funds, no matter what happens to the lender and that the heirs will never have to pay more than the property is worth.
  It allows the loans to remain non-recourse so that borrowers and/or their heirs can walk away from a property after living in the home for any number of years and paying no payments and owe nothing (except the property) even if values have decreased drastically like they did in 2009 - 2012.
  
  It also doesn't take a huge drop in value for values not to keep pace with the balance of a reverse mortgage, especially when borrowers take all their funds from the start and are accruing interest on the full balance for the duration of the loan. When you think about a forward or traditional loan, with a 30-year mortgage, borrowers typically pay 150% or more of the amount they borrowed in addition to the principal in interest over the life of the loan.
  It can be even more during times of higher interest rates. When you think about that, on a reverse mortgage you are not required to make any mortgage payments for as long as you live in the home.
  If you only borrow a little at a time, you can protect your equity but borrowers who borrow all the funds at once early in the term, accrue more interest and if the property appreciation remains flat or declines, then HUD pays a claim so the borrower or their heirs do not need to at the end of the term.
  Reply to ARLO
Faye M.
July 25th, 2021

We had a reverse HECM mortgage that we put money into to be qualified. Also, we paid a $10K mortgage insurance premium upfront. Due to unforeseen circumstances we decided to sell. We only had the reverse mortgage for 2 years and 4 months before closing. Is any of the upfront mortgage insurance we paid refundable? Thanks ARLO!
Reply to Faye
- ARLO™
  July 25th, 2021
  
  Hello Faye,
  
  The HUD mortgage insurance is non-refundable. There is an initial premium and an annual renewal that you also paid, and neither is refundable if the loan is repaid early.
  I wish I could tell you differently, but unfortunately that is the plain simple truth of the matter.
  Reply to ARLO
Grace
April 24th, 2021

Does the mortgage protection premium rates stay the same for the life of the loan or can this percentage increase?
Reply to Grace
- ARLO™
  May 4th, 2021
  
  Hello Grace,
  
  HUD has changed this amount at times but once the loan closes, the rate at which the mortgage insurance premium (MIP) accrues does not change. The mortgage insurance renewal premium rate remains constant throughout the life of the loan.
  Keep in mind though that the premium is based on a percentage of the outstanding principal balance on the loan (that percentage currently being 0.5%). This means that if your loan balance rises because you choose to take full advantage of the terms of the reverse mortgage and make no payments on the loan, or if you take further draws raising the amount you owe, the amount you accrue each month will rise with the larger balance even though the percentage of the MIP is the same.
  
  Before you close a reverse mortgage, you will receive an amortization schedule that is an estimate of the interest that will accrue as well as the mortgage insurance premium. Unless you have a fixed rate full draw loan, the schedule is only an estimate though because these numbers would be affected by further draws and interest rate changes. The amount that does accrue each month will be reflected on your monthly statement.
  Reply to ARLO
DOLORES T.
January 27th, 2021

I AM A SENIOR (88) AND HAVE A REVERSE MTG. LOAN WITH A LOAN BALANCE OF $178.00; HOWEVER, I DO NOT HAVE NOR HAVE I EVER HAD LOAN ADVANCES. IF THE LOAN BALANCE IS MORE THAN MY HOME IS WORTH, WHAT CAN MANAGEMENT CONSULTING DO? WILL I HAVE TO LEAVE MY HOME OR WILL I HAVE TO PAY ANY MONIES TO STAY IN MY HOME?
Reply to DOLORES
- ARLO™
  February 2nd, 2021
  
  Hello Delores,
  
  I am sorry but I am not sure what you are asking, and I do not want to just guess and give you the wrong information. I am not aware of any reverse mortgage that closed with just a balance of $178.00 so I believe that did not come over correctly in your request and in all honesty, the balance really is not important.
  If I understand you correctly, you got the loan, and the current balance of the loan is now greater than the home is worth. Is that correct? That could be because even though you have taken no additional draws, you took the full amount available to you at the time you closed the loan just to pay off the existing loan and the property has not appreciated during the time you have been accruing interest on the loan.
  
  But there should be no issues with the loan if you remain living in the property as your primary residence and keep paying your taxes and insurance in a timely manner. You may not be eligible to receive additional funds from the loan, but you can continue to live in the property if you do those things, and it does not make any difference what the balance is or the value of the home.
  I am not aware of the company "Management Consulting" and do not know if they are even affiliated with your lender or if they are another originator looking to see if they can refinance your home but if you have questions, I encourage you to call your servicer at the number on your monthly statement. Oh, and no, you do not have to pay anything else to the lender on the loan this time to live there. Just be sure to keep those taxes and insurance paid!
  Reply to ARLO
Louisa L.
July 27th, 2020

I have a reverse mortgage on my home with present balance of $127,000. Because of my age of 87 and health reasons, my children want me to move with them. I have HUD mortgage insurance. If I put the house for sale and it sells for less than the $127,000, will the insurance cover the balance. What is the downside of a deed in lieu of foreclosure instead? I have excellent credit.
Reply to Louisa
- ARLO™
  July 27th, 2020
  
  Hello Louisa,
  The loan is a non-recourse loan so the property sells for less than the outstanding balance on the loan you and your heirs will not be required to pay the lender any of that shortfall.
  Before you list the home though, if you think that it will not sell for the full amount owed, contact your lender/servicer and let them know you can no longer live in the property and that you are willing to sell the home but your real estate professional has indicated that the best listing price is $XXX amount and the most probable selling price is $XXX amount and let them tell you if that will be an issue from the start.
  Let them know that you would need to give them a Deed in Lieu of Foreclosure if they cannot work with you on the short sale approval and see which way, they indicate they are more willing to proceed.
  Talk to them about if they report a Deed in Lieu of Foreclosure. Servicers with whom I have spoken do not even report because of the nature of the loan. But be sure you understand the actions that the lender will take and are willing to proceed.
  Unless you plan to buy another house or make another major purchase, even if the lender did report, the chances are very good that reporting would be of little or no consequence and that is why lenders do not report in most instances but be sure you understand your options and are willing to proceed accordingly.
  Reply to ARLO
Gloria
April 27th, 2020

Hello ARLO,
Thank you for your comprehensive replies to questions.
Have one of my own; did a HUD reverse mortgage for my father in 2016 at a non-fixed interest rate. The rate has gone up and with the Feds lowering the rate to below zero, why would it increase? Is this just arbitrary?
Thank you,
Gloria
Reply to Gloria
- ARLO™
  April 27th, 2020
  
  Hello Gloria,
  
  The rate moves based on the terms of the loan and based on the index set up at inception. If the loan is a one-year adjustable rate loan, the interest will change annually. A monthly adjustable rate will change monthly.
  But the index on which the loan interest rate is based was set up at the time the loan was closed. That could have been a few different things but in 2016 that rate was probably the LIBOR or London Inter Bank Offered Rate.
  I tried checking to see what the most widely used index for adjustable rate reverse mortgages in 2016 was because my memory serves that most loans we originated and all that I remember seeing offered were LIBOR but I am unable to find any printed information to verify.
  However, the rate for your father's loan is based on an index that is probably the LIBOR (or possibly a Constant Maturity Treasury or CMT) that is not at 0% as is the Fed Fund Rate. I am not aware of any loans that use the Fed Funds rate as their index.
  
  But something you should know, if your father has the LIBOR index it will soon be replaced with a new index as the LIBOR is expected to go away in 2021. If your father's loan is currently utilizing the LIBOR for its index, under the terms of the legal documents, if the index is no longer available the lender would be forced to choose a new index.
  If you would like further information about the fate of the LIBOR and what will happen after it is gone, the Consumer Financial Protection Bureau (CFPB) has a good article about it on their website at https://www.consumerfinance.gov/about-us/blog/libor-going-away-heres-what-you-need-know-about-libor-and-adjustable-rate-loans/ where you can read all about it.
  Reply to ARLO
Gilbert R.
April 23rd, 2020

Does the mortgage ins pay off the loan at the death of the principle?
Reply to Gilbert
- ARLO™
  May 25th, 2020
  
  Hello Gilbert,
  That would be a form of life insurance and the mortgage insurance on government insured loans covers any losses to lenders or investors purchasing the mortgage backed insurance secured by the loan incurred because of the loan.
  In other words, if a borrower defaults and there is a loss or the loan goes to maturity and the property will not sell for enough to pay off the loan, the lender and anyone who bought securities secured by that mortgage will not lose money. This is what makes the loan available to borrowers in the first place.
  The insurance also insures borrower's estates and their heirs that they will never be required to pay more than the property is worth to repay the loan.
  The insurance maintains the ability for the loan to be a non-recourse loan so that the property is the only recourse the lender has against the borrower regardless of what the mortgage balance does in relation to the property value later.
  Reply to ARLO
Tom U.
October 1st, 2019

Thank you.

Our balance on our reverse mortgage is now $170,000 dollars. If we sell now, after 10 years, we could sell for only $160,000 dollars. Does the reverse mortgage insurance pay the 10,000 dollar shortfall?...or do we?

Or to put it another way, if I died now, my wife would have to leave this house because she couldn't keep it up by herself. Could she just walk away from this house and owe nothing?

Thank you for your help.
Reply to Tom
- ARLO™
  October 6th, 2019
  
  Hello Tom,
  
  The reverse mortgage is a non-recourse loan which means that no matter what you owe, the lender has no recourse other than the property. If there is a balance higher than the property is worth when you leave the home, the lender can look to no other assets to repay the obligation. You paid for mortgage insurance on this loan and you and your estate are covered.
  Reply to ARLO
terry
July 7th, 2019

Where the huge problem comes in is that house insurance. As the debt accumulates the insurance will keep rising. It may get to a point that the owner cant afford it and that is why some have lost their homes
Reply to terry
- ARLO™
  July 10th, 2019
  
  Hello Terry,
  
  I do not know where you got your information, but this does not happen. The law prevents a lender from over-insuring a home. The most a lender can require is the replacement cost of the home -regardless of the amount of the loan.
  Reply to ARLO
Lily
May 21st, 2019

What happens with this PMI insurance as the loan grows? Can the .5% that is charged now grow as well?
Reply to Lily
- ARLO™
  May 21st, 2019
  
  Hello Lilly
  When you talk about loan growth, are you referring to the outstanding balance or the line of credit growth for availability of funds? As the insurance accrues but is not paid, it is added to the loan balance.
  But the annual renewal that you mention (.5% of the outstanding balance) is only charged on the outstanding balance of the loan. As the loan balance grows, so then would the annual MIP renewal.
  If you are talking about the growth of the line on the unused funds, it is computed in that calculation. To determine the growth in the line, you use the interest rate plus the annual MIP times the unused line amount.
  In other words, if your interest rate is 3.5% and the MIP is .5%. your line of credit would grow in available funds to you that year by 4% of the unused line.
  For a $100,000 line, you would have $104,000 available to you at the end of the year if you did not borrow against those funds. The growth rate in the next year would be based on the new loan amount and the interest rate in effect during that year (plus the MIP).
  This is not interest you are earning. If you borrow the money, you being to accrue interest on the funds as borrowed funds. If you never borrow the money, they never accrue interest and do not have to be repaid if you move or by your heirs at any point.
  You only accrue interest on money you borrow and the increase in the line doesn't mean you owe any more, that only happens if you choose to draw the funds.
  Reply to ARLO
  - Donald R.
    April 13th, 2021
    
    My question concerns MIP and the available credit line. I had problems with the lender without my consent or event knowledge withdrawing funds from my credit line to pay insurance or taxes which were not due. To stop this, I withdrew all but $100 from my credit line.
    
    Since March of 2020, while I have taken no new advances, my available credit has been decreasing by about $10 a month, until this month there is zero available credit. The bank's explanation is that the theoretical increased in my credit line (the interest rate plus .5% MIP insurance) is not sufficient to pay the .5% MIP fee, and so my credit line has been decreasing rather than increasing because I am paying the MIP. This makes no sense to me. And what is the impact of there being no funds available to pay the MIP?
    Reply to Donald
    - ARLO™
      April 14th, 2021
      
      Hello Donald,
      The lender is required to be able to give you an accounting of the funds and an amortization schedule for the amount you use and the interest you accrue.
      The Mortgage Insurance that accrues on the unpaid principal balance is simply added to the amount you owe, it is not subtracted from the line of credit available to you so I can't imagine what they are saying and they are not allowed to simply give you a "gee I think it's this..." type answer, they need to be able to give you an accounting along with a monthly schedule to show you any amounts you received, interest accrued, payments made on your behalf and any charges they charged you for services they rendered.
      You should also have seen all of this in your last 12- or 13-month's statements. I see that you said they paid insurance and taxes you claimed were not yet due. You should have investigated that fully with the lender immediately as unless you are on a program whereby, they pay these assessments for you, they cannot simply pay them as they choose if they are not yet due.
      My guess is that there may be a payment that was missed that you are not considering that has put you in a position that caused the lender to start making payments when that one payment was not caught up without their intervention and that there may be other costs involved with their actions but that is just a guess.
      The only way you are going to know for sure is to get an accounting of all payments made and any assessments to you if you do not have all your monthly statements going back to the time before the lender first started making payments of taxes and insurance. I have no way to know for sure what is happening, but I can tell you that it is most likely nothing to do with the mortgage insurance premium (MIP).
      The MIP will continue to accrue and will continue to be added to the outstanding balance from this point forward. If you look at your initial paperwork, the amortization schedule will show you the MIP accrual that is added to your balance monthly and it does not lower the line of credit or increase it either way.
      Reply to ARLO
Cliff M.
April 8th, 2019

My home will be sold "as is" for less than the loan balance. Will the FHA insurance pay the difference without questioning the low selling price? Will the family simply pay the mortgage holder the sale price and they (mortgage holder) files the insurance claim for the balance?
Reply to Cliff
- ARLO™
  April 8th, 2019
  
  Hello Clif,
  
  You can't sell a home for less than the amount owed on the loan without lender approval. If you do not get the approval from the lender in advance, your sale will not close if they do not agree to accept a payoff for less than what is owed as payment in full for the debt.
  The lender must have HUD approval if they are going to authorize any loss on which HUD will have to pay a claim. In order to authorize the sale of the property for less than what is owed on the loan (commonly referred to as a "short sale"), HUD will require the lender to obtain an appraisal on the property. If they agree that the price for which the home is being sold is the market price and that if they foreclosed on the loan they would only turn around and sell it at the same or similar price, they will approve the sale and then HUD would pay the claim for the loss.
  
  So, when you ask me will they pay the claim without questioning the low price, that answer is definitely no. There will be a lot of research to determine that the sale is an arm's length transaction and that HUD is not paying a claim that is higher than they would pay if they required the lender to foreclose and sell the property themselves.
  Reply to ARLO
  - MARIA N.
    May 17th, 2020
    
    Hi Arlo, so are you saying that for instance, my dad is 91 now. My husband and I moved in with him because he could not keep up the house on his own. He has used up all the money from the reverse mortgage, so my husband and I use our own money to do repairs and such. If we wanted to purchase the house through a quick sale and they do an appraisal, if the appraisal comes back less then what is owed, for instance, if the balanced owed is $100,000 and the appraisal comes back for $80,000 is the house sold to me at $80,000 and the insurance covers the rest of the $20,000 owed by my dad?
    When the person dies, and the family gets the chance to buy does it work the same as above?
    Reply to MARIA
    - ARLO™
      May 18th, 2020
      
      Hi Maria,
      The heirs can pay off the loan at 95% of the current market value. So, if the home is valued at $80,000, the heirs would be able to pay off the loan at $76,000, not $80,000 after the borrower passes. The family does not "buy" the home as the home still belongs to dad's estate at that point, not the lender.
      You would just need to clear the title with the probate court and any other heirs and then let the lender know that you want to exercise the option to repay the loan at 95% of the current market value or the amount owed, whichever is less.
      Reply to ARLO
orlando jimenez
February 4th, 2019

Can a private do a Reverse Mortage instead of a Company and the home owner will not have to pay any income tax
Reply to orlando
- ARLO™
  February 5th, 2019
  
  Hello Orlando,
  
  You really need to talk to your tax professional with regard to taxation. The deal with taxes has to do with when the receipt of the funds becomes a taxable event and not really from whom you borrowed the money. You should talk to your tax accountant or attorney as the fact that it is not the government program should not impact its deductibility but that's for your tax professional to check and notify you of for sure!
  Reply to ARLO
Chris Morris
November 29th, 2018

Still have a question, try to answer simply. My mother's property has a 2006 reverse mortgage with MIP. She believes that her one time upfront payment is all she has to pay. Is her '06 loan subject to the yearly .5% additional premium?
Reply to Chris
- ARLO™
  November 29th, 2018
  
  Hello Chris,
  
  Every HECM reverse mortgage has both an initial premium and an annual renewal (accrued monthly), there are no exceptions. That would also include your mom's loan.
  If you look at the paperwork she received when she applied for the loan and received again at the closing, the amortization schedule included with those documents clearly shows an additional column of annual MIP accrual and the monthly statements that she has received since will also show an amount accruing for MIP renewal ever since.
  Your mom's mortgage, originated in 2006, does have an annual MIP renewal premium that is added to the loan balance in addition to the initial premium she incurred at closing.
  Reply to ARLO
Nancy
November 1st, 2018

Hi,

I am a Financial Planner and have a question I hope you can help me with.

My client has an older Reverse Mortgage which was used to purchase a CA house in late 2012. She borrowed the original principal limit of $407,826
on a purchase price of $733,500, [Approximately 55% of the price] where the ongoing PMI fee is 1.25% and the interest being charged is 4%.

The house has been updated and is currently valued at over 1 million.

Question: Can the PMI be reduced or eliminated based on the appreciated value?

Thank you for any help you can provide.
Reply to Nancy
- ARLO™
  November 1st, 2018
  
  Hello Nancy,
  
  I can help you by giving you the answers you seek, but I am afraid it won't be what your client is hoping for. The mortgage insurance premium (MIP) is on the loan for the term of the loan, there is no way to have it dropped. The only way to eliminate it would be to pay the loan off (and payments can be made at any time in full or in part without penalty).
  
  HUD changed the program since she purchased and the Up-front MIP is now higher for new loans closed (2.5%), but the Annual MIP renewal is lower now, it is currently .50% but they also lowered the amount that borrowers receive under the program several times since 2012. So it would not benefit her to refinance the loan as rates are higher now (wiping out the .75 savings on the lower MIP factor), she would get less money requiring her to bring in a lot of cash just to close the new loan and have to pay the difference in the up-front MIP of .5% of the loan amount on the first $625,500 and 2.5% on the remaining difference up to the current lending limit of $679,650 or $4,481.25 in additional upfront mortgage insurance premium just to get less money and to lower the mortgage insurance renewal -if HUD would let you.
  
  The reason I say "if HUD would let you" is because HUD has a 5 times benefit rule to even do a refinance loan. In other words, the new loan has to benefit the borrower with additional proceeds that benefit the borrower by 5 times the cost to get the loan or they won't even let us do the loan. I don't know your borrower's age, but based on the cuts HUD has done to the program, she would have to be in her 90's before we would start to hit that 5 times benefit and I would not recommend the loan to her even if she was (and I think by now you're shaking your head and saying "Nope" as well).
  
  There are new Jumbo or Proprietary programs that do not require mortgage insurance for which she could apply and may be eligible to receive more money or have access to more money later depending on her age, but those rates are always higher and she would be looking at close to 6% on the lowest of the available rates. Even if you add the MIP to her current rate (it's not interest but it accrues the same way), she's accruing at a combined total of 5.25% now and there are no jumbo or proprietary programs offering a rate that low. Unless her motivation for refinancing was to get more money, that would not make sense for her either.
  
  The bottom line is that the MIP cannot be removed, it's requirement is not LTV driven especially since the balance increases over time. HUD requires that the MIP be kept on the loan for the life of the loan. Also, in this market, the 4% she currently has is a very good fixed rate and not available anymore so refinancing to lower the rate is not currently an option. Long-winded answer to your question but I wanted you to know what the options were and why those really weren't good for her at this time as well. If you have any questions, please don't hesitate to ask!
  Reply to ARLO
  - Ann G.
    September 15th, 2020
    
    If my fixed rate is 4.99 and my mortgage insurance rate is 1.5 as i have had the loan for 5 years. Is it a good idea to refinance and get a adjustable rate? I would have to bring $7000 to the table. Our house is worth 1 million and our loan balance is $425,000
    Thank you, Ann
    Reply to Ann
    - ARLO™
      September 15th, 2020
      
      Hello Ann,
      Just recently we have been able to do more refinance loans for borrowers who would not normally have been able to meet HUD's criteria for the 5 times benefit and I believe we could do this for you as well. And I think you could still get a fixed rate if that would be preferable for you.
      You see, the rates are as low as they have ever been currently. The MIP renewal premium is also just .5% instead of the 1.25% that you probably have.
      Therefore, you could probably get a new fixed rate for around 3% with a .5% MIP renewal, dropping your combined accrual for the two to around 3.5% instead of your current 6.24% with extremely minimal costs. I cannot give you an actual quote until I know your full circumstances.
      HUD recognizes that the over 2.5% interest that you would be saving on a balance of $425,000 would be huge and you would make up the cost (if any) of the refinance within just a few months and then continue saving for life.
      I would strongly suggest anyone with a fixed rate over 4.5% and the MIP renewal of 1.25% to contact us to let us see if a refinance would benefit you but in your case Ann, I think you would really like the numbers once you had a chance to review them.
      Reply to ARLO
tony fedrizzi
July 15th, 2018

What is a mortgage payee clause? Does this clause have be part of the insurance policy?
Reply to tony
- ARLO™
  July 16th, 2018
  
  Hi Tony,
  The Mortgagee's Loss Payee Clause is the clause that states that the mortgage loan holder is also a loss payee under the insurance policy. It is included in all loans, not just reverse mortgages. All Lenders require them any time a borrower obtains a loan in order to protect the lender's interest in the property as well as the borrower's.
  Without the Lender's Loss Payee clause, if a borrower suffered a loss (total or otherwise) from fire or other causes, a borrower could take the insurance payment and walk away without ever rebuilding the improvements and the lender could be left with a loan on a worthless piece of property.
  Therefore, they have the loss payee clause which requires the insurance company to make all checks out to the lender and the borrower and the lender will not sign off on the check until the property is repaired at times of damage.
  Reply to ARLO
Bob Huffman
January 10th, 2018

Your page says there were changes to the insurance cost structure for 2017/18. It presents the new cost structure, but what was the old cost structure? Are we paying more or less? Will the new rules be applied to old contracts?
Reply to Bob
- ARLO™
  January 23rd, 2018
  
  Hi Bob,
  
  I'm not sure what you mean but if you are asking whether or not existing loans will be affected by the new rules, no, all loans already closed remain under their current terms. Any new loans closed that did not get a HUD case number prior to October of 2017 will be subject to the new HUD parameters (until the change them again).
  
  HUD now charges the same initial mortgage insurance premium of 2% of the property value, the HUD lending limit or the purchase price if a purchase transaction, whichever is less. The HUD lending lime has gone up to $765,600 (from $636,150). This is different from the old method whereby borrowers were only charged .5% if they utilized 60% of the line or less in the first 12 months.
  However, the renewal premium has gone down from 1.25% of the mortgage balance to just .5% of the balance so some borrowers will pay more at closing on the HUD costs and all borrowers, especially those with a balance, will pay less every year.
  Reply to ARLO
ronald r phillips
September 11th, 2015

if I choose a 10 year payment on a reverse mortgage do I pay a monthly fha insurance premium or does the lender pay it and add it to my loan
Reply to ronald
- ARLO™
  December 8th, 2015
  
  Hi Ronald,
  
  The MIP renewal accrues on the outstanding balance. Both the interest that accrues and the MIP that accrues are added to the balance and each are paid when the loan is paid off. This way, if you choose to pay off the loan earlier than the 10-year term, you would only pay the amount that you actually accrued and there is never a prepayment penalty on your reverse mortgage.
  Reply to ARLO
  - Ric McCleary
    March 20th, 2018
    
    following on that line of query - is the MIP based on the total value of the loan - even if it is a line of credit that is never used?
    Reply to Ric
    - ARLO™
      March 20th, 2018
      
      Hi Ric,
      The initial Mortgage Insurance Premium is determined by the lesser of the home's value or the HUD maximum Lending Limit ($765,600). Each year thereafter, the renewal is based on the outstanding balance of the loan.
      Therefore, the initial premium is based on the value of the home regardless of whether you ever use the line or not but every year thereafter, the lower the balance is, the lower the renewal premium will be (it's .5% of the outstanding balance).
      Reply to ARLO

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