Introduction to Reverse Mortgage Insurance

When you get a federally insured HECM reverse mortgage, the biggest initial cost is the Upfront Mortgage Insurance Premium (UFMIP).  This is a one-time fee of 2% of either the maximum lending limit ($1,149,825) or your home’s appraised value, whichever is lower.

There’s also an ongoing cost called the Annual Mortgage Insurance Premium (MIP).  This is 0.5% of your remaining loan balance and is added to your loan each month.

Mortgage insurance on a reverse mortgage has important benefits.  It ensures you will never owe more than your home is worth, even if your loan balance exceeds your home’s value.  This protection is called the “non-recourse feature.”

With reverse mortgage insurance, you can be sure that your money, whether as a lump sum, monthly payments, or a line of credit, will always be available to you.  This is true no matter how long you live or if your lender goes out of business.  The insurance ensures the lender cannot cancel, reduce, or freeze your line of credit.

Understanding these costs and benefits can help you decide if a reverse mortgage is right for you.  It protects you, your heirs, and the lenders, making the reverse mortgage program safe and reliable.

ARLO explains reverse mortgage insurance

Benefits of Reverse Mortgage Insurance

Reverse mortgage insurance provides essential protections that are particularly valuable for borrowers of reverse mortgages, more so than for those with other types of home loans, such as FHA or conventional loans requiring private mortgage insurance.

One of the standout features of reverse mortgage insurance is the “non-recourse feature.”  This means if the loan amount exceeds the value of your home when it’s time to pay the loan back, neither you nor your heirs will be responsible for paying the excess amount.  You or your heirs will never owe more than the home is worth, providing significant peace of mind.

Non-Recourse Protection Explained

In a reverse mortgage, unlike a regular mortgage, you are not required to make any monthly payments as long as you live in your home. Because of this, the loan balance can grow over time.

Imagine, after many years, that the amount you owe from the reverse mortgage could end up being more than the current value of your home, especially if no payments have been made to reduce the loan balance.  This situation is where the non-recourse protection comes in: it ensures that you or your heirs will never have to pay more than the house is worth, no matter how much the loan balance has grown.

Guaranteed Access to Loan Funds

With a reverse mortgage, you can choose how to receive your money: as a one-time lump sum, in regular monthly payments, or through a line of credit that you can tap into as needed.  Reverse mortgage insurance ensures that these funds will be available to you exactly as agreed in the terms of your loan.

This guarantee is particularly important because it still holds even if your lender goes out of business.  For borrowers who opt to receive their funds over time, such as through monthly payments or a line of credit, this protection is invaluable.  Unlike some traditional banking products, your reverse mortgage line of credit cannot be canceled, reduced, or frozen by the lender, ensuring consistent access to your funds.

Understanding the Upfront Mortgage Insurance Premium (UFMIP)

When you take out a reverse mortgage, one of the first closing costs you’ll encounter is the Upfront Mortgage Insurance Premium or UFMIP.  This one-time fee amounts to 2% of either the maximum lending limit, which is currently $1,149,825, or the appraised value of your home, whichever is lower. This fee helps protect the lender and ensures the terms of your loan are guaranteed by the federal government.

Annual Mortgage Insurance Premium (MIP) Explained

With a reverse mortgage, there is an ongoing cost known as the Mortgage Insurance Premium or MIP.  This fee is 0.5% of the remaining loan balance and is added to your loan amount each month.  However, you don’t have to pay this fee until the entire loan is paid off.

While mortgage insurance in traditional mortgages mainly protects the lender if a borrower fails to make payments, in a reverse mortgage, this insurance offers significant benefits for you, the borrower.  It ensures that you will never owe more than your home is worth when the loan is due, even if the loan balance grows larger than the home’s market value.

Weighing the Costs vs. Benefits of Reverse Mortgage Insurance

When thinking about a reverse mortgage, it’s crucial to consider how mortgage insurance impacts the process.  This insurance protects you as the borrower and the lender, your heirs, and the investors who may purchase securities backed by these loans.  This insurance makes the reverse mortgage program feasible and safe for all involved.

Understanding this can help you evaluate whether the benefits of a reverse mortgage, such as no required monthly payments and protected access to funds, outweigh the costs associated with the insurance premiums.

Reverse Mortgage Insurance Requirements by Loan Type

Type of MortgageDescriptionConditions for Mortgage InsuranceUpfront MIPOngoing MIP
HUD Reverse Mortgage Federal Housing Administration insured loan.Required for all loans.YesYes
Proprietary Reverse MortgageProprietary and Jumbo reverse mortgages carry no insurance premiumsNeverNoNo
USDA LoanUnited States Department of Agriculture loan for rural homebuyers.Required for all loans.YesYes
Conventional LoanStandard home mortgage not insured by a government agency.Typically if down payment is less than 20%.VariesYes, if down payment < 20%
VA LoanDepartment of Veterans Affairs loan for service members and veterans.Funding fee required, no monthly MIP.Yes (Funding Fee)No
This table outlines the conditions, upfront, and ongoing requirements for mortgage insurance associated with FHA, Proprietary/Jumbo reverse mortgages, USDA loans, conventional loans, and VA loans.

Frequently Asked Questions about Reverse Mortgage Insurance


Why is there mortgage insurance on a reverse mortgage?

Mortgage insurance is required on a reverse mortgage to protect you and the lender.  This insurance guarantees that you will never owe more than your home’s value.  If your loan balance becomes higher than your home’s value, the insurance will cover the difference.


Who insures reverse mortgages?

The Federal Government insures the HECM reverse mortgage program through the FHA.


Do all reverse mortgage loans require mortgage insurance?

No.  The HECM reverse mortgage program has mortgage insurance, but there are Non-FHA programs without mortgage insurance.


How much is the mortgage insurance premium?

In 2024, the initial mortgage insurance premium for the HECM program is 2% of the property value or max claim (whichever is less).  The current max claim is $1,149,825.  The annual renewal is 0.50% of the loan’s outstanding balance.


What does UFMIP stand for?

UFMIP stands for Up-Front Mortgage Insurance Premium.


If I refinance my reverse mortgage to a new reverse mortgage, do I have to pay the full 2% mortgage insurance again?

Not the first time you refinance, but it may change if you refinance more than once.  The first refinance uses 2% of the property value or the HUD maximum lending limit, whichever is less.  Subsequent refinances use a formula that gives credit for previous UFMIP payments.


Does mortgage insurance premium cost differ between reverse and forward mortgages?

Yes.  Reverse mortgage insurance is higher because it represents a greater risk to HUD.  There is no mandatory repayment date, and the loan balance grows over time.  The premiums help keep the insurance fund solvent.


Can reverse mortgage insurance be reduced or eliminated if the value of your home appreciates?

No.  A reverse mortgage is a non-recourse loan, meaning the lender cannot seek repayment beyond the property’s value, regardless of the loan balance.


Does reverse mortgage insurance cover any shortfalls if the home is sold for less than its value?

Yes.  The insurance covers any shortfall if the home sells for less than the loan balance.


Does the mortgage insurance settle the loan upon the borrower’s death?

No.  Mortgage insurance covers losses lenders might incur, not the loan itself upon death.  That function is characteristic of life insurance.


Does the mortgage insurance rate remain constant for the duration of the loan, or can this percentage increase?

The rate remains constant at 0.5% of the loan’s outstanding balance.  However, as your loan balance increases, the amount you accrue each month will also increase, even though the percentage stays the same.