Mortgage insurance premium (MIP) is the amount paid by a mortgagor (i.e borrower) for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

After loan closing, every HECM borrower is required to pay an upfront (initial) MIP premium of 2 percent of the maximum claim amount (adjusted property value) and a monthly MIP according to the annual rate of 0.5 percent (one-half of 1%) of the loan’s outstanding balance. These two together generate a mortgage insurance reserve that can be used to compensate the FHA insurance fund for future claims as well as the ones that have already been filed.

Mortgage insurance insurance guarantees that you will receive your promised loan advances, and not have to repay the loan for as long as you live in your home, no matter:

-how long you live there;
-what happens to your home’s value; and
-what happens to the lender from whom you got your loan.

The MIP also guarantees that your total debt can never be greater that the value of your home at the time the loan is repaid. It makes it possible for you to keep getting your monthly loan advances or growing creditline as promised even if:

-you live much longer than others your age;
-your home’s value grows very little, not at all, or declines, or;
-our loan balance catches up to and then is limited by the value of your home.

The MIP premiums paid by all borrowers are used to continue making loan advances to and limit the amount owed by the borrowers who live the longest and whose home values grow the least or decline.

A Few More Related Articles of Interest:

FHA - Federal Housing Administration

LTC(i) - Long-Term Care (insurance)

Wall Street Journal: Hold Off on Getting a Reverse Mortgage

Reverse Mortgage Rate Comparison

Reverse Mortgages to Help America’s Seniors Act