What Are The 3 Types Of Reverse Mortgages That You Need To Know

A reverse mortgage enables elderly homeowners, those who are 62 years and above, to receive money by selling their homes without having to give out the keys, or else assume a new monthly payment plan. 

It is a special mortgage in which the borrower receives cash in advance that doesn’t need to be repaid until the borrower dies, sells the home, or moves out for more than a year. Well, let’s know what are the 3 types of reverse mortgages.

Types Of Reverse Mortgages

Reverse mortgages can be broadly categorized into three; federally-insured Home Equity Conversion Mortgage (HECM), private or company originated, and those which are funded by a charity or a non-profit organization, commonly known as single-purpose reverse mortgage. 

These three reverse mortgage options come with different characteristics and variations, as knowing the differences and similarities helps those who want to use it for making the right decision.

Home Equity Conversion Mortgage (HECM)

There are different kinds of reverse mortgage and the HECM is the most popular one being insured by the FHA. Here are some of the main features of a HECM: Here are some of the main features of a HECM:

- Supported by the FHA whereby this provides security and the standard terms are provided.

- In that it makes it mandatory for the homeowners to gain counseling before being allowed.

- Includes both fixed and adjustable mortgage rates

- Permits one to withdraw money in a lump sum, on a monthly basis, or under a line of credit.

- In turn, property taxes, insurance, as well as the maintenance of the property has to be met.

- Some of the features include setting loan limits based on age, home value, and interest rates.

The HECM is popular as it is a government regulated loan that has fixed legalities and realistic borrowing legalizations unlike the other products. Such as the flexibility in options to obtain payouts, and the assurance that comes with dealing with a federally-insured program for seniors.

Proprietary Reverse Mortgages

Private reverse mortgage is a loan that is offered by banks, credit unions, or other institutions but not through government endorsement. Key details on proprietary reverse mortgages: Key details on proprietary reverse mortgages:

- It is a mortgage given by private entities, and not directly by the government.

- Every lender has its conditions, including the rate, fee, and limit.

- They usually have higher lending capacities than HECMs.

- As a rule, the homeowners must go through some counseling before the loan is approved.

- If you want to allow your donors to pay in instalments, you should accept lump sum payment, monthly payment, or line of credit.

- To have efficient interest rates, the two are variable and fixed interest rates.

Single-Purpose Reverse Mortgages

It is important to note that there are many state and local governments, and some nonprofit organizations that provide single-purpose of the best reverse mortgage. These place certain limitations on the use of the funds. Here is more information:

- It is only used for certain categories of necessary expenses such as home improvement costs.

- Form of funding that is provided by the government, non-profit agencies, not private moneylenders

- Offer lower rate and cost than the conventional products

- For owners, it should be mandatory to undertake counseling before they qualify for endorsement.

- These should be allowed as lump sum or for the provision of a particular service.

- Age eligibility as well as equity factors that are unique beyond the general criterion.

Conclusion

This implies that if you require a large sum to cater for a certain expense or you want a line of credit so that you can access more funds in the future or if you are in a position whereby you want to supplement your social security income, there is a reverse mortgage to suit your needs.

Now that you know the HECM, proprietary, and single-purpose reverse mortgages you can go ahead and get the right product depending on your wishes and your home equity. 

It is recommended that one contacts an informed loan officer and discuss whether any of these reverse mortgages fits their retirement agenda.