Three Types of Reverse Mortgages

Three Types of Reverse Mortgages

Types of reverse mortages

You may have heard about reverse mortgages and thought they weren’t suitable for you. You may think they are too confusing or that you probably won’t qualify. However, reverse mortgages offer simple solutions to homeowners 62 and older who want extra funds for paying bills, traveling, or assisting in medical expenses by using the equity in your home. Reverse mortgage experts can easily walk you through the steps in determining if you qualify and which type of reverse mortgage is right for you.

What Is a Reverse Mortgage?

A reverse mortgage is a loan for homeowners 62 years old or older who have equity in their home and want to turn that equity into cash while remaining in their home. Funds can be received as a fixed monthly payment, a lump sum, or a line of credit. Unlike a traditional mortgage, a reverse mortgage does not require you to make payments. Instead, the debtor can pay the loan once the homeowner sells the home, takes out another loan to pay it off, or it is paid by their estate if the homeowner dies.

There are generally three types of reverse mortgages:

  1. Single Purpose Reverse Mortgages
  2. Proprietary Reverse Mortgages
  3. Home Conversion Mortgages

Our team of reverse mortgage specialists can help you tailor the mortgage to best fulfill your needs and help determine the best package for you and your family.

Single Purpose Reverse Mortgages

Single-purpose reverse mortgages are usually offered by some state and local government agencies and non-profit organizations. Many homeowners may qualify for these loans if they fall within the low to moderate-income brackets. As the name suggests, these loans are used for one specific purpose, such as home repairs or property taxes. Though they are the least expensive type of reverse mortgage, there are more constraints on how the money is used.

Proprietary Reverse Mortgages

Proprietary Reverse Mortgages are private loans offered by specific companies and are not FHA insured. If you own a higher-valued home, you may be able to get a more significant advance since you are not bound to the same set of limits and qualifications of an FHA-insured HECM program. Unlike the single-purpose reverse mortgage, the funds can be used for any reason. The individual lender determines the amount they can loan, sets the criteria for qualifications, and usually comes with lower up-front costs.

Home Equity Conversion Mortgages (HECM)

Home Equity Conversion Mortgages (HECM) are the most common type of reverse mortgage for which seniors qualify. Home values-based below the conforming loan limit (currently up to $765,600) are federally-insured and are backed by the Department of Housing and Urban Development. Like Proprietary Reverse Mortgages, the funds can be used for any purpose. The amount you can borrow depends on several factors, such as age, the appraised value of your home, current interest rates, etc. HECM for Purchase or H4P is a reverse mortgage that allows seniors to buy a new principal home with proceeds from a reverse mortgage. The borrower does not have to make mortgage payments and does not have to repay the loan until they leave the residence permanently.

What to Consider When Shopping for Reverse Mortgages

When trying to decide which type of reverse mortgage is right for you, there are a few things that you may want to consider before choosing:

  • What will you be using the funds for? To supplement your retirement income, you may need it to cover regular monthly expenses. Maybe you need a single lump-sum payment to fund home improvements or a large medical bill. How you receive your payments may help determine the type of reverse mortgage you choose.
  • The value of your home may determine your reverse mortgage type. If your home exceeds the upper limit on HECMs, you may need to use a proprietary reverse mortgage.
  • Your financial situation and the equity in your home could determine the best fit for a reverse mortgage.
  • Speak with a reverse mortgage specialist to discuss your personal preferences, the amount of money you need, and how you want to spend your retirement years. They can help you determine the best reverse mortgage options for you.

Which Reverse Mortgage Option Is Best for Me? Talk to Northwest Reverse Mortgage

Reverse mortgages allow seniors to comfortably remain in their homes, using the equity they have built through the years. Each homeowner has specific wants and needs, and at Northwest Reverse Mortgages, our team of specialists will expertly guide you through all the options available to make the best, most informed decision. Still, have questions? Check out our frequently asked questions, or contact Northwest Reverse Mortgage today to set up an appointment to discuss how a reverse mortgage can benefit you!

Image source: karamysh / Shutterstock

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Northwest Reverse Mortgage, LLC. ML- 5797/ CL-1834787/ DFPI# 60DBO-140333. Equal Opportunity Mortgage Broker licensed in Oregon, Washington, Idaho and California. Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act. Credit on approval. Terms subject to change without notice. Not a commitment to lend. Contents not provided by, or approved by FHA, HUD or any other government agency. All potential tax benefits should be verified with a professional licensed tax advisor. NMLS Consumer Access

At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds; charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees; the loan balance grows over time and interest is charged on the outstanding balance; the borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home; interest on a reverse mortgage is not tax deductible until the borrower makes partial or full re-payment.