Because HECM Reverse Mortgages are insured by FHA, MIP is required. Improvements have been made recently to allow for lower MIP charges for loans with lower initial loan amounts. The new option has a low initial mortgage insurance premium (IMIP) at .5% if the funds received at closing is 60% or less of the available principal limit. If the principal limit usage is higher than 60% the IMIP is 2.5% of the home value or maximum claim
amount. The maximum claim amount high lending limit remains at $625,500. For home values above this amount, we use $625,500 for calculating purposes. For very high home values, Jumbo Reverse Mortgages may be the best solution. Click here to get Jumbo Reverse Mortgage Updates
A common question is, “Why is mortgage insurance necessary since I have a lot of equity?” The reason is, the MIP allows the HECM program to exist. Without it, HUD would not be able to insure the loan. Lenders would not be comfortable lending at competitive rates as they would need to carry the risk. The private reverse mortgages currently on the market have higher rates and lower loan to value ratios because they carry the risk of the mortgage going upside-down.
The other type of HECM mortgage insurance is the ongoing MIP which is 1.25% of the loan balance. This amount is part of the ongoing accrual rate.