Knowing that reverse mortgages are government insured can help provide potential reverse mortgage borrowers with more comfort in the reverse mortgage loan product. I have provided some information here about the protections that come with reverse mortgages, but please feel free to contact me with any additional questions.
The federally-insured reverse mortgage - Home Equity Conversion Mortgages (HECMs) - are insured by the Federal Housing Administration (FHA).
FHA requires a Mortgage Insurance Premium (MIP) to be collected at closing and during the life of the loan. These premiums are charged to the borrower's loan balance. The upfront Mortgage Insurance Premium (MIP) is calculated using your home's appraised value or a maximum of $726,525 (the national lending limit cap of $726,525) and is charged at closing. The ongoing FHA insurance premiums are calculated using each month's outstanding loan balance.
This insurance provides the following protections and peace of mind for borrowers and their children:
- The borrower(s) are not required to pay more than the home’s fair market value.
- If the loan balance exceeds the value of the home, FHA reimburses the lender for the difference when the estate sells the home.
- Payments made to the borrower by the lender are insured by FHA. If the lender is unable to continue making payments, the payments would be made by FHA.
- If the loan balance grows and exceeds the home’s present market value, the lender cannot take title. FHA insures that borrowers can live in their home as long as basic loan obligations are met (homeowner’s insurance in force, property tax payments current and the home is maintained in good condition).