When you apply for a Home Equity Conversion Mortgage (HECM) or reverse mortgage through the Federal Housing Administration you will pay two percent of the home value when you settle on your loan and one half a percent annually thereafter. The lender will take care of the annual premiums and add them to your mortgage balance. While the mortgage insurance premium (MIP) may seem to be an unnecessary expense to some, it is an important addition to your mortgage and helps protect you in a couple of different ways.
Within the last decade too many lending institutions have either become part of mergers with other banks or have gone out of business. While mergers usually carry all of the original assets and liabilities, when a lender goes out of business there is nothing to go along with it. If the company files bankruptcy all assets are liquidated which means any remaining funds in your reverse mortgage are likely to be absorbed into the assets that are distributed to creditors. This will leave you with nothing left of the cash from your home unless you are able to find another lender. This could be difficult, too, since you will not have clear title to your home which could still remain part of the assets of a company that goes out of business.
In today’s economy homes are losing value because of a sagging real estate market. For senior homeowners this means they can owe more than the value of their home at the time they are ready to sell the property or they die and their heirs sell the property. On a traditional mortgage this would not be as serious an issue because the homeowner would be making payments that would eventually offset the decrease in home value but since there are no monthly payments with a reverse mortgage, the balance would continue to increase beyond the value of the home unless the real estate market were to change direction. While that is a definite possibility in such a volatile market current predictions are that the market will continue on its current downward spiral in the foreseeable future.
Mortgage insurance is designed to protect the senior homeowner from both of these scenarios. If a lender should go out of business, FHA would insure the homeowner still has access to the funds from his reverse mortgage. Even if those assets were to be absorbed in a bankruptcy or business closing the homeowner would not lose the money from his reverse mortgage. The mortgage insurance premiums are also protection for the homeowner against declining real estate values. The premiums assure him or her they will never owe more on the home than it is worth. This protects the homeowner at the time he decides to sell the property or in the event he dies while he is still living in the home. While this also protects the lender the real purpose is to protect the borrower and his heirs.
A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of “62 Senior Moments.” If you would like more information, please call (866) 683-3690 or visit our website to research a Reverse Mortgage Lender.
Written by Robert Griffin - www.ReverseMortgage360.com
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