FHA Reverse Mortgages.. MIP (Mortgage Insurance Premium)

I am currently working with a man that is in the process of refinancing with an FHA Reverse Mortgage (HECM). We were going through the disclosures and he was appalled at the MIP funding fee of 2% of the appraised value of the home. He was equally appalled at the yearly MIP of 1.25%. I empathized with him and explained to him that all FHA loans came with MIP. Here are some things to think about regarding MIP.

First of all it is insurance. FHA Reverse Mortgages (HECM) are non-recourse loans which means the lender can never go after the borrower for a deficiency judgement. The MIP covers any deficiencies. So although the MIP is expensive it does serve a purpose with an FHA Reverse Mortgage (HECM). It provides you and your heirs with protection against passing along debt when  you die.

Here is another thing I explained to him. And this may be controversial when it comes to an FHA Reverse Mortgage (HECM), but in my opinion it is a non-emotional fact. The MIP and all other fees: Title, Escrow and Appraisal have absolutely no effect on your daily life when obtaining an FHA Reverse Mortgage (HECM loan). Here is what I mean...You are using your equity to pay for the MIP both up front and yearly along with all the other fees. You will get a lump sum at closing or have access to a line of credit that has already accounted for the MIP deduction and other upfront fees on an FHA Reverse Mortgage (HECM). Since you are not making any payments and your interest is silently accruing every year it has no effect on your daily life. It is purely an emotional hurdle that we all must overcome.

I asked my client a question. Do you think your home will appreciate over the next 10 years? He said yes. Do you think it will appreciate more than the fees you are paying at the close of escow? Yes. Finally, do you think since we are at or near the bottom of the market that the chances are your appreciation will outpace the amount of interest you will accrue on a yearly basis? His answer was probably. Does any of what we are talking about have an effect on your personal financial situation negatively? NO.

I also explained to him that the FHA Reverse Mortgage (HECM) had a saver option. In this option he does not have to pay upfront MIP, however he will get much less money. I explained to him that if you chose the saver then it could have a direct impact on him financially because even though he would be saving $10,000, in this particular case, he would get almost $60,000 less cash at closing. This will have a direct effect on his financial situation because that is actual money that he will NOT be getting at close. Now the real question for someone looking at an FHA reverse mortgageg (HECM) is the Saver worth it. Only the client can answer that question. It is dependent on the financial needs of each particular client.

A light came on for him and he appreciated the input. He wants as much money as possible at closing for his particular needs. He chose the no points rate and highest amount of cash at close and he will gladly finance the upfront MIP.

If you would like an education on the FHA Reverse Mortgage (HECM) or an analysis. Please visit my website: http://www.thefactsaboutfhareversemortgages.com/ or contact me from the information below.


Noah Burford
noahb4@gmail.com
949-278-9244 direct phone number.