A federally-insured reverse mortgage assures that, as the borrower, you will receive certain loan payments as agreed upon by the terms of your loan.  Moreover, you or your heirs will never be forced to repay more than your home is worth to pay off the loan, regardless of the loan’s balance.

The Federal Housing Administration guarantees those benefits through its Home Equity Conversion Mortgage program, including most reverse mortgages.  To receive that guarantee, borrowers pay for it through reverse mortgage insurance premiums. 

Recent MIP 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 required of all borrowers who have federally insured Home Equity Conversion Mortgages.

HECM borrowers buy into this insurance through an upfront fee and an ongoing fee.  And like other forms of insurance, some important protections and benefits come with it.

Upfront Mortgage Insurance Premiums (UFMIP)

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 $1,089,300 or your home’s appraised value, whichever is less.

Ongoing Mortgage Insurance Premiums

Ongoing MIP rates are 0.5% of the outstanding loan balance, accrued annually and paid for when the loan is due.  Typically, mortgage insurance protects the lender if a borrower defaults.

But in the case of a reverse mortgage, there are some even more significant benefits geared explicitly toward the borrower.

What Does Reverse Mortgage Insurance Provide?

Reverse mortgage insurance offers several important protections for borrowers.  These protections are typically even greater for reverse mortgage borrowers than borrowers with mortgage insurance through other FHA loan programs.

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

Non-recourse protection

The balance on a reverse mortgage loan grows over time because no payments are required from the borrowers while they live in the home.  This is the 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 home’s value after growing for many years with no payments by the borrower.

Loan proceeds are guaranteed.

Reverse mortgage borrowers can receive their loan proceeds as a lump sum, a line of credit, or in ongoing installments.  The reverse mortgage insurance guarantees that these loan proceeds will be disbursed to the borrower as agreed upon under the loan terms.

The loan proceeds are guaranteed even if the lender goes out of business.  Similarly, with a line of credit, the lender cannot cancel or freeze the line of credit when this insurance is in place.

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 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.

Mortgage Insurance FAQs

Q.

Why is there mortgage insurance on a reverse mortgage?

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

Do all reverse mortgage loans require mortgage insurance?

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

Who insures reverse mortgages?

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

How much is the mortgage insurance premium?

On the HECM program as of Jan 2023, the initial mortgage insurance premium charged is 2% of the property value or max claim (whichever is less).  The current max claim is $1,089,300.  The mortgage insurance renewal is 0.50%, charged annually on the loan’s outstanding balance.
Q.

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

No.  If you are refinancing an existing HECM loan that paid a 2% upfront mortgage insurance premium (MIP), you will receive a credit towards the MIP on the refinance.  For example, if your home appraised for $400,000 when you got your first reverse mortgage, you would have paid $8,000 in MIP on that loan.  If your home were appraised for $600,000 at the time of refinance, you would owe (under current guidelines as of January 2023) $0.00 in upfront MIP for the refinance loan.  The reason for this is the formula for calculating the max MIP on a refinance is as follows: (New Max Claim – Original Max Claim x 3%).  So, for this hypothetical scenario, you take $600,000 – $400,000 = $200,000 x 0.03 = $6,000.  Since you would have paid $8,000 on the original loan, you would have zero due in upfront MIP for the refinance.

Now, if this person were to look into refinancing again down the road (3rd loan on the same property), the MIP formula would be the same, only the amount for the credit would be $0.00 because HUD bases the credit amount toward the MIP on the amount paid on the most recent loan only not cumulatively over all time.  This is also not applicable if you sell your home with a reverse mortgage and buy a new property.  The MIP credit only applies to a specific property, not a borrower.

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