Why Do I Need Insurance for a Reverse Mortgage? ....................................................................................................................................................................................................... Why does anyone need insurance? The reason is that the unexpected and unplanned for tends to happen. Your home is your greatest investment, and even without any type of home loan, you would probably want to have homeowner’s insurance. Homeowner’s insurance not only protects your home from any damage, but it protects you from being liable for any injuries or accidents that occur on your property. In today’s world, having insurance on your home is simply a wise decision.
When it comes to getting a home loan, whether it is a first mortgage or a refinance, any lender is going to require that you have adequate homeowner’s insurance in order to protect their investment. The situation is no different when it comes to a reverse mortgage. The lender is actually making an investment in your home when they loan you money. It only makes sense that they would require that investment to be protected.
When you decide to get a reverse mortgage loan on your home, you will not necessarily be required to make payments for your homeowners insurance or even taxes from your own monthly income. You will be given the same option that you have with a conventional loan of setting up an escrow account from which your homeowners insurance and property taxes can be paid. The major difference with a reverse mortgage is that the money that goes into this escrow account can actually come out of the loan you are receiving for your home. In other words, you can pay it without any up front or monthly cost to you. The most obvious benefit of setting up such an escrow account it the peace of mind you will have knowing that you don’t have to worry about remembering to pay these bills. Of course, you still have the option of choosing not to open an escrow account and taking personal responsibility for making certain that your property taxes and home insurance are paid regularly.
IF you opt for a HUD reverse mortgage, you will find that you will be charged two percent of your home’s value up front for your insurance premiums. This amount can be financed by your home loan. This initial payment is also combined with one half of a percent of your loan balance each year paid by your mortgage company and charged not to you, but to your mortgage account. Despite this requirement, the FHA’s insurance on reverse mortgages enables HUD’s program to be less expensive than most smaller reverse mortgage programs run by private companies without FHA insurance.
Think of your FHA mortgage insurance premium as part of your investment instead of an added expense. It may be well worth paying. Peace of mind comes from knowing that this insurance will guarantee that even if your lender goes out of business, the government will step in and make certain that you can access your loan funds. Mortgage insurance also guarantees that you will never owe more on your total home loan than the current value of your home. There are good reasons to have insurance for your reverse mortgage.
