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Why do Reverse Mortgages have Insurance?

Question from our Reader:

Is it common for Reverse Mortgages to include an additional monthly fee for “Mortgage Insurance”?
What companies do not charge for Mortgage Insurance?

Hi Ronald,

The lenders do not charge for the Reverse Mortgage Insurance; HUD does on the Home Equity Conversion Mortgage (HECM or “Heck-um”) which is an FHA or government insured program. At this time, there are very few proprietary or private programs available that do not require this insurance as most disappeared when the market experienced all the difficulties in 2009 and 2010. The programs that have come out since the collapse of the market are mainly for Jumbo or high balance loans and I think you will find that the cost with the insurance is still typically less than what these programs have to offer.

The government insurance is what makes the program work. It protects borrowers, lenders, heirs and even the folks who buy the securities backed by the loans. Without the insurance, the viability of the program is very questionable and that is borne out by the fact that most of the programs that were not FHA-insured disappeared when the market collapsed and there are very few that have returned and those that have offer borrowers very few options and at higher rates.

Borrowers who do obtain the proprietary programs, typically because of the loan sizes and property values, currently have fewer programs
available to them. I am only aware of 2 proprietary programs at this time, both are fixed rate requiring a full draw of the funds available and both have interest rates in excess of 7% (greater than the HECM rates plus the insurance renewal of 1.25% of the outstanding balance). There are no guarantees on these programs by HUD, so growing balance lines of credit that they can access at later times would not be guaranteed and therefore borrowers would be open to the risk that something might happen to the lender before they accessed all of their funds, causing their line to close prematurely. Therefore, the fixed rate full draw option on the private programs is the only way to ensure that all funds are available to every borrower.

So Ronald, forgive me for taking so long to answer what is a quick question, but the HECM loans plus the insurance are still below the rate that accrues on the proprietary or private offerings that are available and I wanted to be sure you understood that this insurance protects you on future draws as well as gives you the availability of programs that offer a reverse mortgage line of credit, monthly payments, a full draw or a combination of these features instead of just the one lump sum that the private programs offer. If you need the higher balances that the private programs can give, they are the only way to get them but if not, even with the insurance, the HECM program still gives you more options.

Sources:
About Reverse Mortgage Insurance Premiums
HUD.gov
Upfront Mortgage Insurance Premium

The Real Cost of Driving Uninsured

If paying your monthly insurance premium feels like a hassle at times, you may be tempted to let your policy lapse. Doing so will leave you and your car uninsured on the road. While some drivers consider the cost of insurance to be too large to be beneficial, looking at the costs of repairs for uninsured vehicles can be eye opening. The following infographic gives greater insight about the real cost of driving uninsured.

fix it yourself infographic
Presented By IFA Auto Insurance

Average Cost of Vehicle Repairs
If you are found at-fault in an accident while driving an uninsured vehicle, the cost of all repairs will fall on you. Whether or not you choose to fix your own vehicle, you are legally responsible for repairing damage done to another driver’s vehicle. While the average driver pays over $1,400 each year for a car insurance policy, the savings can be enormous if that policy is needed.

Lawsuits and Legal Representation
On top of the costs of repairing damaged vehicles in a car accident, uninsured drivers may also be held responsible for the costs of legal claims. An accident victim who is injured in a car accident may press legal charges against an uninsured driver resulting in lawsuits for:

  • Medical Costs
  • Lost Income
  • Pain and Suffering

The next time you think your insurance premium is too expensive, be sure to take these factors into consideration to see the real cost of driving uninsured.

5 Car Insurance Myths That Every Driver Should Know

Most drivers think their auto insurance will cover them in an accident if they are current on their monthly premium. This is true in many cases, unless an uninsured driver hits their car – or a friend borrows the car and wrecks it. Auto insurance may not protect them from theft, either.

Without proper insurance coverage, these incidents could cost drivers a small fortune. According to estimates by the Insurance Research Council, more than 16 percent of drivers are uninsured, and state legal requirements are generally not enough to cover the entire cost of an accident. Here are five car insurance myths that every driver should know.

Myth 1: The State Requirement is All a Driver Needs
While the state requirement is all a driver legally needs, it will not cover the expenses for a serious accident. Getting by with the minimum requirement can be costly, especially for an accident that involves litigation.

Myth 2: The Driver is Responsible for an Accident
In most cases, the insurance follows the car no matter who is driving. If a driver has an accident in a borrowed car, the car’s owner must pay for the damages. If the insurance is not enough to cover the expenses, the responsibility goes to the driver involved in the accident.

Myth 3: All Insurance Policies Cover Uninsured Motorists
A basic insurance policy does not protect against uninsured motorists (UM); this coverage is an option. Moreover, drivers who have UM protection are only covered for physical injuries. Only collision insurance covers property damage caused by uninsured motorists.

Myth 4: All Insurance Policies Cover Natural Disasters and Theft
Unless a driver has comprehensive coverage, auto insurance will not pay for damages or loss due to natural disasters or theft. Most drivers do not have this optional policy, unless their car is financed by a creditor that requires it.

Myth 5: A Rental Car Requires Additional Coverage
Basic insurance policies already cover rental cars, so it is not necessary to buy additional insurance. For example, full coverage insurance on a personal car also applies to a rental if both are intended for personal use. Drivers who only carry liability insurance, however, are wise to buy additional coverage for rental cars.

Protection from loss is a crucial part of smart investing, including car insurance investments. Small monthly premiums protect assets (cars) as well as health in case of an accident. A Wilmington auto insurance representative can work with drivers to fully explain their plans and prevent overlapping coverage.

Compare Rates in Australia

One of my favorite financial sites is bankrate.com. When I was looking for a mortgage I scoured that site on a daily basis watching rates change and thinking about who I would place my mortgage with. Interestingly for me it wasn’t all about the best rate. I also wanted someone who wouldn’t sell my mortgage and who had an office close by. I was able to find it and get a decent rate easily. I am amazed at the difference between the advertised rate and the rate you end up with though.

Even though bankrate is the 800 lb gorilla in the market there are a growing list of sites specializing in financial niches as well.

Anyway, there is a new site that seeks to help Australians with their rates as well. The site is called GoodWithMoney. They compare traditional items like credit cards and cheap loans, but what I also found interesting is that you can compare rates on items like insurance and broadband services. They have most of the major items that you need for your financial being on their site specifically geared to those living in Australia. They also have a section dedicated to financial Australian news.

If you have any other interesting sites that help to compare rates for a given niche let us know in a comment.

How Health Insurance can Actually Give You Better Physical and Financial Well-being

According to Cencus.gov, there are 16 per cent of US resident this live without health insurance. As that will affect directly to the person without the insurance, in the long term this will affect US economy in the future.

If you one of them that have not protected by proper health insurance, consider applying for one. You need to protect your greatest asset – your health – in order to protect your and your family well-being. Even the sense of security in having an insurance is actually helping you being more healthy, as psychological issues play major role in health.

The role of health insurance in personal neurofinance

Consider this snapshot fo the article from PsychologyToday.com

How are psychology and medicine linked?

Seven of the nine major causes of death–including tobacco use, alcohol abuse and poor diet–stem from behavior. Between 50 and 70% of all visits to physicians are for problems rooted from psychology and mounting evidence proves that psychological intervention can be useful in treating a wide range of problems, from AIDS and asthma to obesity and osteoporosis.

From the article snapshot above, we can learn than most health problems related to psychology. In the other way around, health problems can affect your psychological well-being due to stressors, such as difficulty in paying medical bills and other financial strains.

It is safe to assume that all physical and financial well-being are led by and leading to psychology issues.

How health insurance can give you better physical and financial well-being

Of course, health insurance is not a medicine. However health insurance can have a placebo effect to the insured.

Taking a personal individual insurance can help you protect your financial well-being and give you the sense of security, leading to better physical and psychological well-being. The effect of those is similar to the placebo effect I mentioned earlier.

Also, having you as a health insurance sales leads, insurance agents will take a good care of you and your needs throughout your insurance account lifetime. This, in itself, will act as an added sense of being well taken care of. Just make sure that you choose the right Insurance Company and the right agent.

I recommend you to seek recommendations on health insurance providers that offer exceptional coverage and support.