The Types of Reverse Home Mortgages- An Overview

Reverse mortgages are an increasingly popular way for senior American citizens to stay in their homes when faced with specific challenges. This loan type allows you to withdraw funds from the equity in your home. Unlike other mortgage options, you do not have to worry about making payments. Instead, your lender pays you. The loan will be dueonly afteryou leave the place, sell it, don’t meet loan terms, or breathe your last. If one dies, the loan becomes the responsibility of their descendants, or, more precisely, heirs. You have to understand home equity if you aren’t too familiar with this loan type.

Equity refers to the money someone would get when they sell off their home after considering the outstanding loan amounts. If you have cleared the amount of mortgage or didn’t take one, your equity will be the market price of your home or property. And the reverse mortgage is borrowing money against your homeownership stake. People find reverse mortgage attractive because it is non-taxable and comes with easy and multiple payout options. Attorney Tommie Harsley explains the different types of reverse mortgages one can apply from lenders.

Proprietary Reverse Mortgage

The loan is a “reverse” mortgage type because the loan balance grows over time instead of decreasing like a traditional mortgage. For this, homeowners can mortgage their home equity and receive a lump sum of cash. Proprietary reverse mortgages tend to be available with private lenders, and they typically have higher interest rates and fees than traditional options offered by the government. Theyare a good option for homeowners who don’t qualify for a traditional reverse mortgage or who want to borrow a larger amount of money.

Home Equity Conversion Mortgage (HECM)

This type of lending allows homeowners to convert a portion of their home equity into cash. HECMs are available to homeowners 62 years of age or older and have significant equity in their homes. It is a popular choice for seniors who want to supplement their income in retirement or need extra cash for medical expenses or other purposes. You can get this loan through FHA-approved lenders. HECMs come with several important protections for borrowers, including staying in their homes as long as they continue to meet the loan terms and pass the loan on to their heirs.

Single-Purpose Reverse Mortgage

This reverse mortgage optionis valid for specific use cases, as mentioned by your lender. For example, you can pay for home repairs or improvements and medical expenses from this amount. You generally get a lump sum and have torepay the loan with interest.

Remember, you need to satisfy some eligibility criteria to qualify for this type of lending opportunity, and your home, too, has to meet specific standards. For example, the applicant has to be a minimum of 62 years of age or more and be the owner of a house, which is his primary residential address. Equity in the home has to be significant, and one should continue paying for their insurance policies and taxes.