Reverse Mortgage Insurance Premiums – IMIP And MIP Explained!
Good Day Reverse has written an easy read to help explain the role that the Initial Mortgage Insurance Premium, or IMIP and the Annual Mortgage Insurance Rate plays in FHA reverse mortgage loans. If at anytime you would like to request one of our special offer reverse mortgage quotes you can easily do so by clicking request a special offer quote, or by calling us directly at toll-free: 877-676-6542. Every special offer quote includes various reverse mortgage rates and programs all for a discounted cost. After reading this article you should have a better understanding on how Initial Mortgage Insurance Premium and Annual Mortgage Insurance Rate help protect the FHA reverse mortgage program. For more information on the reverse mortgage you can check out our comprehensive, what is a reverse mortgage, blog post.
What is the Reverse Mortgage Initial Mortgage Insurance Premium?
The word “initial” in the description confirms that this premium is charged at the start of the reverse mortgage loan once it has funded. It is also a premium that is only paid once during the life of the reverse mortgage loan. The Initial Mortgage Insurance Premium is not required to be paid by the borrowers out-of-pocket, but instead added to the starting loan balance.
What is the Cost of the Initial Mortgage Insurance Premium?
The cost of the Initial Mortgage Insurance Premium depends on one key reverse mortgage loan factor. The IMIP charged on all HECM government insured reverse mortgages is 2% of the appraised value, or maximum lending limit of $679,650. In the event that your property appraises for over the maximum lending limit then you will be charged the 2% on just the $679,650.
Example: Your home is appraised for $350,000 and your starting approved principal limit is $180,000. Your current mortgage that we are paying off is $72,000, which is 40% of the principal limit. Your IMIP charge would be 2% of the appraised value of $350,000 which would equal $7,000. If your property appraised for over the lending limit of $679,650 then you would be charged an IMIP of 2% on $679,650 which equals $13,593.
What is the Reverse Mortgage Annual Mortgage Insurance Rate?
This is a mortgage insurance that is charged monthly for the life of the reverse mortgage loan. All FHA reverse mortgage loans require Annual Mortgage Insurance Rate be charged.
What is the Cost of the Annual Mortgage Insurance Rate?
As of October 2017 all FHA insured reverse mortgage loans pay an annual rate of .50% on the outstanding loan balance. This is a reduction from the previous rate which was set at 1.25%, so it is good news! This rate will only be charged on the current loan balance of the reverse mortgage loan and will not be charged on any money in a line of credit, or set-aside. The .50% is a fixed rate and it does not vary depending on the loan to value, or appraised value like the Initial Mortgage Insurance Premium. If you are obtaining a FHA reverse mortgage loan then your Annual Mortgage Insurance Rate will be set at .50%.
Why Do Reverse Mortgages Need To Be Insured?
There are a number of reasons why reverse mortgages should be and need to be insured. The main reason that there are insurance premiums on the loan is to protect all parties for the life of the loan. In the event that the home is ever worth less than what the current loan balance is both the homeowner and the lender are protected. You can continue to live in your home for as long as you choose and the lender will never make the loan come due as long as you remain current on your property taxes and homeowners insurance. Also, if you have money available in a line of credit you will still be able to access that money. When you obtain a reverse mortgage you are securing that equity, so it is protected by the insurance. These protections are unlike any other mortgage loan currently available.
Do I Still Need Homeowners Insurance?
YES. Even though the reverse mortgage contains both the Initial Mortgage Insurance Premium and the Annual Mortgage Insurance Rate every borrower still needs to keep current their homeowners insurance. Why? The easiest way to put this is that the Initial Mortgage Insurance Premium and Annual Mortgage Insurance Rate protect the reverse mortgage loan and the available money that the borrowers have available to them. A borrowers homeowner’s insurance premium protects the house in case anything was to happen. Two reverse mortgage requirements are that every borrower keeps current on both the homeowners insurance and taxes, so it is imperative that you do not confuse the two. If you have any further questions about differentiating the two please let us know, so we can discuss further.
I Have a Reverse Mortgage. Do I need to Pay the Initial Mortgage Insurance Premium if I Refinance?
This is a common question. If you already have a reverse mortgage then you already paid the Initial Mortgage Insurance Premium when you obtained your loan. If I paid it on my appraised value of $350,000 initially then why do I have to pay for it again? The good news is that you DO NOT. When you are applying to refinance your reverse mortgage to either lower your rate, or obtain additional money you only might pay Initial Mortgage Insurance Premium on the additional equity in the home. You will not be hit twice with paying the Initial Mortgage Insurance Premium on the original amount that was paid on the reverse mortgage.
Additional Discounts and Credits
Good Day Reverse offers additional discounts and credits on their reverse mortgage costs and fees to help reduce the total upfront fee of the reverse mortgage like a discounted origination fee. If you would like to see what Good Day Reverse can offer please learn more about our Good Day Advantage.
Have a Good Day!
Good Day Reverse, Inc is licensed or registered to engage in reverse mortgage loan origination activities in the state of California
August 14, 2018
July 24, 2018