Many times when people hear the phrase mortgage insurance premium they automatically think its for people who are not putting down a big enough chunk of cash or if they are refinancing they don’t have enough equity.
While this is certainly true in the traditional world, in the reverse mortgage world it is a requirement for everyone getting a reverse mortgage.
Many times seniors ask me why they are being charged a mortgage insurance premium when they own their home free and clear.
The mortgage insurance premium on a reverse mortgage is different from the mortgage insurance premium on a traditional mortgage. On a traditional mortgage, the mortgage insurance premium is there to protect the bank. On a reverse mortgage, it is there to protect the senior.
The reverse mortgage is a guaranteed loan by the Federal Housing Authority (FHA). One of the benefits is that you or your heirs will never owe more than your home is worth. So for example, if your loan balance is $150,000, but your home is only worth $100,000, the bank cannot go after your estate.
Another benefit of paying the mortgage insurance premium is that the loan protects the senior from ever having to make a mortgage payment as long as the reverse mortgage is in effect.
There are two ways that a senior with a reverse mortgage pays for mortgage insurance. First, they pay up front. This is usually included in their closing costs.
The second way is that they have on-going mortgage insurance premium that is added to the loan balance on a monthly basis by the lender.
While there is no out of pocket costs for the mortgage insurance premium, it’s added to the loan balance.
While a reverse mortgage is not for everyone, many seniors’ lives can be positively changed. Its best to talk to a reverse mortgage specialist to see if you would be a candidate.
If you have any questions about a reverse mortgage, please feel free to call me directly at 559-994-3692.
Comments(3)