Mortgage Insurance Premiums on Reverse Mortgages
With a reverse mortgage, homeowners are not required to make mortgage payments; however, they are required to pay property taxes, homeowners insurance and mortgage insurance. While property taxes and homeowners insurance work pretty much the same way from one type of mortgage to the next, mortgage insurance is a little different when it comes to reverse mortgages.
Upfront & Annual MIPs for Reverse Mortgages
In a reverse mortgage, the borrower is responsible for two mortgage insurance premiums (MIPs). The first MIP is paid by the borrower to the FHA upon closing.
The amount of the first MIP is based on the amount of funds withdrawn during the initial year. If the borrower is going to withdraw 60% or less of the available reverse mortgage funds in the first year, then he or she may be charged an upfront MIP of 0.50%* of the appraised value of the home.
On the other hand, if the borrower is going to withdraw more the 60% of the available funds, then he or she may be charged a higher premium of 2.50%* of the appraised value.
Let’s use an example. Let’s say your home is worth $200,000. If you withdraw more than 60% of your reverse mortgage’s available funds in the first year, you would be charged $5,000 for your first mortgage insurance premium. If you were to withdraw less than 60%, then your MIP would be only $1,000.
The annual MIP for a reverse mortgage does not come out of the reverse mortgage’s available funds. Instead, it accrues over time and is paid once the reverse mortgage becomes due and payable. The reverse mortgage becomes due and payable once the last surviving homeowner no longer uses the home as his or her primary residence.
According to the National Reverse Mortgage Lenders Association, the annual premium is equal to 1.25%* of the outstanding loan balance.
For more information on the reverse mortgage insurance premium requirements, contact one of our experienced Reverse Mortgage loan officers.
*Rates subject to change – speak with a reverse mortgage professional for current rates.
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Potential Benefits of Reverse Mortgages**:
- No monthly payments and no repayment is required until all borrowers are no longer using their property as their primary residence, all parties on the deed pass away, or they fail to pay their property taxes and homeowners insurance.
- Tax free monthly income*
- Payments can be used for whatever the borrower wants, including home renovations, consolidating debt, paying for medical expenses and insurance costs, and traveling and other leisure activities
- Reverse mortgages provide a tool that allows seniors to tap into the equity they have in their homes. There are no income or minimum credit score qualifications. In today’s tightening credit markets, reverse mortgage products may be one of the best solutions available to most retired homeowners.
- Possibly the greatest benefit of all, reverse mortgage programs may help seniorsremain in their homes that they have worked so hard to pay for throughout their lives.
- A reverse mortgage is what we call a non-recourse loan. This means that with a reverse mortgage you are not personally liable. The liability is only to the extent of the value of your home at time of sale, death or vacating the premises as your permanent residence. You are not liable nor are your heirs personally liable; they can either sell the home at time of your death or keep the home and pay off the remaining balance of the reverse mortgage.
Talk to a reverse mortgage professional to learn more about some of the benefits of reverse mortgages and to see if one is right for your financial needs.
*Consult a financial tax professional for details.
**Loan benefits and parameters are subject to change. Consult with a mortgage professional for up-to-date information.