What is FHA Reverse MOrtgage Insurance?
By Don Seibert
What is FHA Reverse Mortgage Insurance?
By Don Seibert
A reverse mortgage for seniors is a loan based on the equity of your home that is designed especially for those 62 and older who own their own homes. This loan program allows homeowners to enjoy the benefits of retirement with tax free income that need not be repaid until the owners leave the home and it is sold or they pass on. The proceeds from the sale revert first to the lender of the reverse mortgage to repay the mortgage before any net equity disbursement is made.
Many reverse mortgages are backed by the US Department of Housing and Urban Development (HUD). HUD backs these reverse mortgages that are provided by approved lenders. If the reverse mortgage is not repaid with the amount of the sale of the home, HUD will pay the remainder of the balance due to the lender, and no debt is uncured on the part of the estate or heirs. For example, if you have a reverse mortgage for seniors and you outlive the actuarial tables, the HUD insurance will continue the monthly payments to you as long as you live!
The ability to back these reverse mortgages is through the Federal Housing Administration (FHA). FHA reverse mortgage insurance allows HUD to provide this backing for reverse mortgages for seniors. Basically, the FHA reverse mortgage insurance allows HUD to help lenders provide lower cost reverse mortgage loans than other, private loan products. The FHA also sets the limits for the amount of a reverse mortgage loan based on FHA loan caps for the area.
FHA reverse mortgage insurance is paid for by consumers who use HUD reverse mortgage loan programs. Two percent of the value of the home is paid up front for FHA reverse mortgage insurance. Throughout the lifetime of the loan, an additional half percent of the loan balance is paid yearly for the FHA reverse mortgage insurance.
However, many consumers do not see the impact of these costs. The FHA reverse mortgage insurance is often covered by the loan itself. The lender adds the amount of the FHA reverse mortgage insurance, as well as any closing costs and fees, to the balance of the loan amount. These additional loan costs are taken into account with the loan amount is determined for the reverse mortgage.
These additional costs can make a reverse mortgage for seniors rather expensive in the cost department. If you do not plan on living in the home for at least 5 years, a reverse mortgage for seniors may not be for you. Be sure in investigate all of the pros and cons and be fully aware of the insurance and their respective costs before proceeding. Some really good advice about reverse mortages for senior can be had for free from the AARP.
Don Seibert is a retired business executive intimately familiar with real estate mortgages and the needs of senior citizens. His website is www.retiree-finance.com and it has More Reverse Mortgage Information and many more free articles related to home refinance for Senior Citizens.