If I take a reverse mortgage do I have to pay PMI insurance even if I pay my own home owners insurance?

Hi Sue,

PMI is the acronym that stands for “Private Mortgage Insurance”.  PMI is used on conventional loans and allows borrowers who wish to obtain a loan with less than 20% equity in a property to qualify for the loan.  This insurance insures the lender against any losses that they might incur if the borrower should default on the loan.  Its one real benefit to the borrower is that it allows borrower access to higher loan to value loans.

The insurance that government insured loans require is Mutual Mortgage Insurance (MMI) and you can read all about that program on HUD’s website here if you would like, but it also allows borrowers to obtain loans with less than 20% equity but also, in the case of the reverse mortgage program, it does a lot more.

First and foremost, the insurance makes the federal program available.  It is also attractive to investors which keeps the costs to borrowers down.  The HUD Home Equity Conversion Mortgage (HECM or “Heck-um”) has always been available even when the private programs faded out and disappeared completely.  In addition, with the HECM programs including its insurance, the rates have typically been lower than just the private rates offered due to the fact that the loans are so much better received by secondary market investors as GNMA securities.

This insurance guarantees borrowers that the funds will always be available to them, even if the lender fails and HUD has to take the loan over.  The program also gives borrowers the peace of mind that they and their heirs can never owe more than the property is worth and the lender can never seek repayment from any other assets the borrower my own, regardless of how much money the borrower borrows or how much property values my decrease (as they did in 2007 – 2012).

So the insurance that you pay on your home is hazard insurance and protects you and the lender against fires, accidents, etc.  The HUD insurance protects you and the lender which makes the loan available and at rates and costs that history shows us are otherwise higher without the FHA Insurance.  I’m sorry if this is a long-winded way of saying “Yes, you still have to pay for both kinds of insurance”, but I also thought it was important that you knew what you were paying for and how it was helping you.

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Why Do Reverse Mortgages Have Mortgage Insurance?  By Mike Branson – Add me to your circles