Why Reverse Mortgages Need Mortgage Insurance

Reverse mortgages have proven to be a great help to many seniors in recent years and it looks like they will continue to help many more in the future. Among other great features that they have, a reverse mortgage enables seniors to have a cash flow even when everything else is experiencing difficulties due to economic stress.

Reverse Mortgage Money Is Guaranteed to Be Available

The HUD reverse mortgage program, called Home Equity Conversion Mortgages (HECM’s), offers a guarantee on these loans that most other companies do not offer. Recent days have seen many people with HELOCS find out that no more money is available to them. Their money has been frozen, even though it was supposed to be available when they wanted to withdraw it.

HUD’s program, which is made available as an FHA reverse mortgage, has a guarantee on it to ensure that seniors who have a reverse mortgage through them will be able to get their money when they want it. This means that your money is secure even if the company that actually gave you the loan goes out of business.

Mortgage Insurance Fees Are Charged

The money needed to cover this expense is taken out in a upfront 2% charge – the mortgage insurance premium (MIP). It is a reverse mortgage rate that is set by the government and is 2% of the total value of your home. In addition, there will be a monthly charge of 0.5% in order to maintain the cost of your mortgage insurance.

The main reason for these charges is because the government does not subsidize the HECM program. It is the money that comes from each reverse mortage owner that covers the costs. If your home should decrease in value, or if you live longer than expected, it will be money from these charges that will make up the difference.

Mortgage Insurance Prevents You from Paying More than the Home’s Value

Besides insuring that your money will be there, it is this money that will also make sure that the amount owed when it is due is not going to cost you more than the value of your home. This protects you and your relatives – no matter what happens to the value of your home. Be aware, however, that this guarantee is only for government HECM’s.

The mortgage insurance premium provides you with the assurance that your money will be there. You never need to be concerned about making a payment on it, either, because the 2% is taken out when you get the reverse mortgage, and the rest is subtracted from the total amount available. This means you never have to make a payment while you are living in your home.

Reverse Mortgages Require No Payment While You are in Your Home

The only concern that you will have while you are in the home is to make sure that the normal bills on the home are taken care of. You are responsible to pay the utilities and taxes, and you must also maintain it, too. As long as these are taken care of, you can live in it as long as you need it.

Reverse mortgages make a lot of sense for seniors who need to ensure that they have a larger cash flow than what social security can provide. It can help you to stay in your home, too, and help you with monthly payments. To see how much you might be able to receive, a reverse mortgage calculator can give you an estimate.

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One Response to “Why Reverse Mortgages Need Mortgage Insurance”

  1. Esther Trible Says:
    November 24th, 2009 at 12:03 pm

    I have a jumbo reverse mortgage taken out in 2007 which paid off my mortgage and gave me a line of credit that increases by 5% every year. Does your article mean if the lender goes out of business my line of credit could disappear? The lender wants me to refinance with them, getting the FHA insurance. However, that means they would reapppraise my home (which appraised for 835k) and probably lower the total amount available to me. It is worrisome to think that if I don’t refi I could lose the loan. The loan alance now is 191k.

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