8192 / Is a Reverse Mortgage borrower required to purchase Mortgage Insurance Premium (MIP)?

Yes. Mortgage insurance has always been required on HECM loans. In order to reduce the high initial upfront cost that was keeping many people over 62 from obtaining a reverse mortgage, in 2010 the Federal Housing Administration introduced the HECM SAVER. The goal was to make reverse mortgages more affordable for more seniors by reducing the initial MIP and other upfront fees. In order to do this, these cost reductions are offset by lowering the amount available to the borrower.

(MIP) Mortgage Insurance Premium	HECM SAVER	HECM STANDARD
Amount of initial premium	0.01 percent of maximum claim amount (lesser of sales price, appraised value or FHA mortgage limit).	2 percent of the FHA maximum claim amount.
Upfront fees	Lower	Higher
Amount of money available to borrower	Lower	Higher

As to the deductibility of Mortgage Insurance Premiums; according to IRS Publication 936, an individual can treat amounts paid for qualified mortgage insurance as home mortgage interest. The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006.

Qualified mortgage insurance. Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in Section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006).

In their September 21, 2010, Mortgagee Letter 2010-34 HUD introduced the HECM Saver and established the MIP rates for both the HECM Saver and HECM Standard. The initial MIP for the HECM Saver was set at 0.01 percent and for HECM Standard at 2 percent of the maximum claim amount; the amount of MIP will continue to be 2 percent. Both are calculated on the maximum claim amount, and must be paid at the time of loan closing.

On both the Saver and the Standard the MIP is charged monthly on the outstanding balance at an annual rate of 1.25 percent.

MIP Rates	HECM Saver	HECM Standard
Initial MIP	.01 Percent	2.0 Percent
Annual MIP	1.25 Percent	1.25 Percent