Reverse Mortgage MIP Explained: The 2% Upfront and 0.5% Annual FHA Premium

A HECM reverse mortgage carries two FHA mortgage insurance premiums: an upfront premium of 2.0% of the maximum claim amount, charged once at closing, and an annual premium of 0.5% of the outstanding balance, accruing every year for the life of the loan (24 CFR §206.105). This is the mortgage insurance premium, or MIP, and it is what makes the HECM non-recourse: the FHA insurance fund guarantees that the borrower and heirs never owe more than the home's value at payoff, and it guarantees the borrower's line of credit and monthly payments even if the lender fails. A reverse mortgage is a loan, not a government benefit, but the FHA insurance behind it is real and the MIP is the premium that funds it.

Last reviewed 2026-06-01

This guide explains both premiums, what they buy, how they accrue, and how to reduce them. The MIP is the single largest closing cost on most HECM files, and it is also the most misunderstood, because it protects the borrower rather than the lender alone. The full closing-cost breakdown sits in the reverse mortgage closing costs guide.

What is the 2.0% upfront MIP at closing?

The upfront MIP is 2.0% of the maximum claim amount, which is the lesser of the home's appraised value and the FHA HECM lending limit of $1,249,125 for case numbers assigned on or after January 1, 2026 (HUD ML 2025-22). On a $400,000 home, the upfront MIP is $8,000. On a home appraised above the lending limit, the 2.0% applies to the $1,249,125 cap, not the full value, capping the upfront premium at roughly $24,983.

The upfront premium is charged once, at closing, and is almost always financed into the loan rather than paid in cash. Financing it keeps the borrower's out-of-pocket cost low but adds the premium to the day-one balance, where it then accrues interest and the annual MIP like any other financed cost. It is the single biggest cost on most HECM files, larger than the formula-capped origination fee.

What is the 0.5% annual MIP per year on the balance?

The annual MIP is 0.5% of the loan's outstanding balance, accruing every year for the life of the loan (24 CFR §206.105). It is not a closing cost paid at signing; it is added to the balance over time, the same way interest is. As the balance grows, the dollar amount of the annual MIP grows with it.

This is the part borrowers comparing total cost often miss. The MIP is not only the 2.0% upfront, it is also half a percent a year on a rising balance. On a line of credit, the annual MIP accrues only on the amount drawn; on a lump sum, it accrues on the full balance from day one. Over a long horizon, the cumulative annual MIP can exceed the upfront premium.

What does the MIP buy?

The MIP funds the FHA insurance that makes the HECM what it is. It buys three guarantees:

• Non-recourse protection. The borrower and heirs never owe more than the lesser of the loan balance or 95% of the home's appraised value at payoff (24 CFR §206.125). If the balance grows past the home's value, the FHA insurance fund covers the shortfall, not the borrower's other assets or estate.
• Line-of-credit and payment guarantee. If the lender fails or stops funding, the FHA insurance ensures the borrower still receives their line-of-credit draws and tenure or term payments. A HELOC has no equivalent; a HELOC lender can freeze the line.
• Growth-feature backing. The line-of-credit growth feature, where unused capacity rises at the note rate plus 0.5%, is backed by the same insurance. The 0.5% in that growth formula and the 0.5% annual MIP are the same rate, which is not a coincidence: the insurance and the growth feature are two sides of the same FHA structure.

These protections are why the HECM costs more upfront than a HELOC. The premium is the price of the guarantee, and for a borrower who values non-recourse protection and an unfreezable line, it buys something a cheaper product does not.

Can the MIP be reduced or refunded?

The MIP rates are set by federal rule and are not negotiable; every HUD-approved lender charges the same 2.0% upfront and 0.5% annual. There is no shopping the premium down. Two facts do affect the total, however:

• A lower maximum claim amount means a lower upfront premium. Because the upfront MIP is 2.0% of the maximum claim amount, a borrower whose home is worth less, or who is capped by the lending limit, pays a smaller upfront premium in dollars.
• The upfront premium is partially refundable in one narrow case. When the loan is refinanced into another FHA-insured product within three years of the original closing, the upfront MIP is refunded prorated by months elapsed. On a sale, a non-refinance payoff, or any payoff after 36 months, the upfront premium is not refundable.

The annual MIP is never refundable; it pays for ongoing insurance coverage that the borrower is using as long as the loan is open.

How does the MIP fit the total cost?

On a typical $400,000 HECM, the upfront MIP of $8,000 is the largest single closing cost, ahead of the $6,000 formula-capped origination fee. The annual MIP then accrues quietly at 0.5% of the balance for as long as the loan runs. A borrower weighing a HECM against a HELOC should price both premiums in, because together they are the main reason the HECM costs more to open. The trade is the non-recourse guarantee and the unfreezable line, which the HECM vs HELOC comparison weighs in full.

To see the upfront MIP and estimated costs netted against a specific home value and age, run the figure in the reverse mortgage calculator.

FAQ