Michael G. Branson Edited by 
Cliff Auerswald 34 commentsBy Michael G. Branson Edited by Cliff Auerswald 34 comments
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.
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.
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.
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.
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.
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.
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.
| Type of Mortgage | Description | Conditions for Mortgage Insurance | Upfront MIP | Ongoing MIP |
|---|---|---|---|---|
| HUD Reverse Mortgage | Federal Housing Administration insured loan. | Required for all loans. | Yes | Yes |
| Proprietary Reverse Mortgage | Proprietary and Jumbo reverse mortgages carry no insurance premiums | Never | No | No |
| USDA Loan | United States Department of Agriculture loan for rural homebuyers. | Required for all loans. | Yes | Yes |
| Conventional Loan | Standard home mortgage not insured by a government agency. | Typically if down payment is less than 20%. | Varies | Yes, if down payment 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. |
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.
The Federal Government insures the HECM reverse mortgage program through the FHA.
No. The HECM reverse mortgage program has mortgage insurance, but there are Non-FHA programs without mortgage insurance.
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.
UFMIP stands for Up-Front Mortgage Insurance Premium.
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.
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.
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.
Yes. The insurance covers any shortfall if the home sells for less than the loan balance.
No. Mortgage insurance covers losses lenders might incur, not the loan itself upon death. That function is characteristic of life insurance.
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.
America's #1 Rated Reverse Lender Celebrating 20 Years of Excellence. LAUNCH REVERSE MORTGAGE CALCULATOR About the Author, Michael G. Branson | Mike@allreverse.comMichael G. Branson CEO, All Reverse Mortgage, Inc. and moderator of ARLO™ has 45 years of experience in the mortgage banking industry. He has devoted the past 19 years to reverse mortgages exclusively.
Look no further. Michael G. Branson, our CEO, brings a wealth of knowledge directly to you. With a robust 45-year tenure in mortgage banking and 19 years dedicated solely to reverse mortgages, he's the expert you want on your side.
Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.
34 Comments on this Article| Christine June 21st, 2024 |
I have a reverse mortgage and the lender carries/charges monthly for mortgage insurance. They are also requiring me to have a mortgage insurance policy. This is totaling around $500 a month. Is this a normal requirement?
 | Michael Branson June 22nd, 2024 |
If you have the HUD HECM loan, it is an FHA-insured loan and they all have a mortgage insurance requirement. Depending on when your loan closed. It may have been at a time when the requirement was 1.25% of the outstanding loan amount instead of the .50% that it is today.
You may want to look into a refinance if it is beneficial to you as the initial cost for Up-Front Mortgage Insurance Premium would be much less if this is your first refinance and you may benefit from the availability of additional funds but be sure it is a good deal for you before you do anything. The lender will perform a test to be certain you meet HUD's requirements to do a refinance but you need to be sure that it also will achieve your desired goals.
| Yvonne T. May 24th, 2024 |
Here is my question: I have a reverse mortgage (HECM) and have had it for over ten years. We have been getting a phone call from a lady who says she is in the HECM servicing dept and that we need to call her right away as we have been overpaying our MIP. She mentioned she also sent us a letter, which we never received or I threw out. We have not responded back as I think it is a sales call - would I be right? Thank you for your advice.
| Michael Branson June 2nd, 2024 |
Did she mention the company name of the servicing department and use your loan number, or did she just use the generic term "servicing department"? This could be a phishing call, and she may be trying to sell you something. If so, it is not a very ethical way to start a conversation. If she is with your lender or with a company that services your loan, she should properly identify herself and give you adequate information to confirm that she is servicing your loan either as your lender or as a company contracted by your lender. I suspect that she is not an employee of or authorized by your lender to contact you about your current loan, which means she is likely trying to get you to refinance your current loan.
Now, that may not be a terrible thing. If you got your loan at a time when HUD charged 1.25% for renewal fees, the current renewals are 0.50% for loans closed today. You may be able to get more money on a refinance as well, but my advice to you is not to jump at the first offer. Get a few proposals and compare them. If a refinance will be beneficial for you, it never hurts to find out if the offer this person is making is the best one available. Sometimes you can do much better by comparing different lenders. Lowering the mortgage insurance on your loan may not be the best option for you if better terms are available now, and the only way to know for sure is to shop and compare.
One easy way to do that is to visit online calculators like the one on our site. Because HUD allows borrowers credits on the initial mortgage insurance based on the amount they paid on their last loan, calculators can't always be totally accurate for refinance transactions for upfront fees because they need to know what you paid on your last reverse mortgage. So, don't be afraid to talk to some originators so they can give you an accurate quote. If you speak to a good company like ours, we will be happy to give you the numbers without any pressure and without requiring you to provide your social security number or other personal information (other than birthdates, which are needed to determine your benefits). Then you can decide if a refinance is best for you.
| Richard T. March 31st, 2024 |
| Michael Branson April 5th, 2024 |
While earthquake coverage might be advisable, it is not required by HUD. You need to determine if you need or want the coverage.
| Sloan June 11th, 2023 |
Your article stated "2% UFMIP" for the original reverse mortgage. Then, for the first refinance, your calculation is New Max Claim - Original Max Claim x 3%. How did you come up with 3% versus 2%? I'm applying for a second refinance, and I'm unsure which to use - 2% or 3% - to verify my UFMIP. I took a credit on the first refinance.
P.S. Your website is tremendously resourceful! | Michael Branson June 20th, 2023 |
Your Up-Front Mortgage Insurance Premium (UFMIP) for the first time you close a reverse mortgage on your home is 2% of the property value or the HUD maximum lending limit, whichever is less. Your second and subsequent loans use a formula that we will go into below to determine how much you will pay that takes into consideration how much UFMIP you paid on the reverse mortgage you closed just before the one you are closing at that time and then give you credit for UFMIP paid on the prior loan. The first time you refinance a HECM with a new HECM loan, HUD will give you credit for the UFMIP you paid on your first loan. This credit is usually large enough so that the first refinance for most borrowers allows them to pay very little to no UFMIP on that first refinance. HUD will only give you credit for any UFMIP you paid on the loan you closed just before each time you refinance. What this means is that if you refinance the loan a second time (which would be your third reverse mortgage on the same property), when you look back to determine how much UFMIP credit you will receive based on what was paid on the prior loan, there is often no credit available because borrowers often pay very little or no UFMIP on their previous transaction on the refinance. If the loan limits, rates, and values were to make it feasible for a 4th transaction, whatever UFMIP paid by the borrower on the third transaction would be available for credit on that fourth transaction (looking back at the previous transaction where the borrower did pay UFMIP).
So, for example, when you got your first reverse mortgage, let's say you paid 2% based on the property value or the HUD maximum claim amount. If you did the loan in 2016 at the maximum claim amount at the time of $636,150, the amount of UFMIP you would have had to pay would be $12,723. But let's assume you were in an area where your home experienced strong appreciation after 2016. Since it increased in value considerably after 2016, you decided to refinance in 2020 when the HECM max lending limit was $822,375 (and for argument's sake, let's say your home was then valued at $822,375 as well). The refinance rule was that you would pay 3% of the difference of the UFMIP based on the value or maximum claim amount, which would be $186,225. When you multiply that by 3% or .03, it equals $5,586.75. In our example, since you paid $12,723 on the last loan, the credit HUD allows for the first payment was higher than the new premium, so you would owe no UFMIP on this refinance.
The UFMIP would be calculated the same way for any new refinances, but the credit for UFMIP already paid changes on subsequent refinances because it only considers the UFMIP you paid on the immediately preceding loan. Continuing our example, let's assume that your home is now worth $1,100,000 (over the current HUD maximum lending limit of $1,089,300, but the numbers are based on the HUD maximum or the property value, whichever is less). Your new maximum will be based on the HUD maximum lending limit, and the difference in value between your refinance in 2020 and today is $266,925 ($1,098,300 minus $822,375 = $266,925) when you multiply that by 3% or .03, that totals $8,007.75. This would be the amount due for UFMIP on this refinances.
This is one of the reasons lenders need help quoting accurate UFMIP costs to borrowers when first speaking to them about reverse mortgage refinances. If the Loan Officer has all the information about prior loans and fees paid, they can know what HUD will charge once they receive it, including how many times the loan has been refinanced, what fees were paid, etc.
| David C. May 11th, 2023 |
My father has a reverse mortgage and is 96. Does his insurance no longer have to pay because of the age clause?
