A federally-insured reverse mortgage comes with the assurance that the borrower will receive loan payments as agreed by the terms of your loan and will never owe more than your home’s worth.
The FHA guarantees these benefits through its HECM program. To enjoy those benefits, the borrower must pay for it through the reverse mortgage insurance premiums.
It includes a one-time insurance payment made upfront i.e., a flat 2% premium based on the maximum limit of $726,525 or your home’s appraised value. The others will be an insurance premium paid annually.
In August 2019, the U.S. Housing and Urban Development department came up with changes to its reverse mortgage program.
The changes include a new cost structure for reverse mortgage insurance required of borrowers with federally-insured HECM. Just like other forms of insurance, it comes with excellent protection and benefits.
The mortgage insurance also protects the lender in case a borrower fails to fulfill his or her obligations. With a reverse mortgage, there are even more excellent benefits for the borrower.
What does reverse mortgage insurance provide?
- Loan proceeds are guaranteed
Reverse mortgage borrowers can choose to collect their proceeds as a lump sum or ongoing installments. The reverse mortgage insurance guarantees that your proceeds will be disbursed as it was initially agreed in the terms of the loan. Even if the lender goes out of business, your proceeds are still guaranteed.
- Non-recourse protection
Your loan balance on a reverse mortgage might grow for many years, and it might even be higher than the value of the home itself. But, with the non-recourse protection, as a borrower, you can never owe more than your home is worth at the maturity of your reverse mortgage loan.
Even though this insurance comes with a cost, the benefits are worth it. By protecting you and the lender, this insurance is a crucial part of every reverse mortgage, and it’s important to understand how it applies to you as a borrower.