Do you need to finance a home improvement? Pay off a current mortgage? Supplement your retirement income? Take care of healthcare expenses? If so, a reverse mortgage lender will do wonders for you. With a reverse mortgage, you can turn the value of your home into cash without having to repay your loan each month.
When Is It Repaid?
A reverse mortgage is a loan taken out against your home. The best thing about it is that you don't have to pay it back for as long as you live there. Reverse mortgage lenders only collect repayment when you
- die
- sell your home
- or move to another house and live there permanently
What Types Are Available?
There are three basic types of reverse mortgages, and they are classified according to who the reverse mortgage lender is.
1. Single-purpose reverse mortgage
This is offered by non-profit organizations, state governments, and local agencies.
2. Federally-insured reverse mortgage
This is also know as HECM, or Home Equity Conversion Mortgage. It is backed by the U.S Department of Housing and Urban Development, or HUD.
3. Proprietary reverse mortgage
The reverse mortgage lender of this type of mortgage is a private company.
Are There Other Differences Between Types?
The three types of reverse mortgages also differ in other aspects, particularly in their terms and manner of use.
1. Single-purpose reverse mortgage
This has very low costs, and you can only qualify for one if you have a low to moderate income. There are two drawbacks to this type of reverse mortgage. First, it is not available everywhere. Second, it can only be used for the purpose specified by the government or by the reverse mortgage lender. Such a purpose may range from paying for home repairs to paying off property taxes.
2. HECM and proprietary reverse mortgage
These tend to be costlier than the other two home loans. In fact, the up-front charges could be very high. These two types of reverse mortgage, however, are not without their advantages. For one, many reverse mortgage lenders offer them. For another, HECM and proprietary reverse mortgage lenders do not ask for proof of income or a bill of good health. Finally, these two mortgages may be used for any purpose.
How Much Can You Borrow?
In single-purpose reverse mortgage, the amount is set according to how much you need.
In a proprietary reverse mortgage or HECM, the reverse mortgage lenders offer amounts depending upon a combination of factors, such as:
- the type of reverse mortgage you choose
- present interest rates
- the appraised value of your home
- your address
- your age
Reverse mortgage lenders put a high premium on age. As a rule of thumb, the older you are, the more valuable your home is. Secondly, the less mortgage you have left to pay, the more money you can get.
How Will You Get What You Borrow?
A reverse mortgage lender gives you cash in several ways:
1. all at once, in a single chunk of cash
2. as a credit line, wherein you can decide when and how much of the money available is paid to you
3. on a regular basis, with the amount and schedule of payment fixed
4. as a combination of the three previously mentioned payment methods
How Do You Qualify?
To be eligible for a reverse mortgage, you must be at least 62 years old and must live in your own house.
If you are cash-strapped, a reverse mortgage may just be the answer you need. Be sure to research about this type of loan first, though. In loans, as in all other things, it is better to be safe than sorry.
