What Is a Reverse Mortgage?

A reverse mortgage allows homeowners age 62 or older to borrow money using the equity in their homes as collateral. The loan typically doesn't have to be paid back until the homeowner dies, moves out, or sells the home. There are three basic types of reverse mortgage loans available to homeowners: single-🥃purpose, federally insured, and proprietary. This article explains how they compare.

Single-Purpose Reverse Mortgages

澳洲幸运5官方开奖结果体彩网:Single-purpose reverse mortgages are offered by some state and local governments and nonprofit organizations. They are the least expensive option for a reverse mortgage, partly because they're backed by the government or the nonprofit. As such, homeowners can expect to pay less in interest and fees for a single-purpose reverse mortgage 澳洲幸运5官方开奖结果体彩网:than for 🐲a home equity conve🃏rsion mortgage (HECM) or a proprietary reverse mortgage.

This kind of loan is the least common of the three types and isn't available in every state. It works somewhat differently from the other types, which can be used for any purpose. Single-purpose reverse mortgage lenders restrict how the proceeds can be used, such as necessary repairs to the home or to pay 澳洲幸运5官方开奖结果体彩网:property taxes.

Like other reverse mortgages, single-purpose reverse mortgages don't have to be repaid until the home's ownership changes, the borrower moves to a different primary residence, or the borrower passes away. These loans can also become due if borrowers stop maintaining 澳洲幸运5官方开奖结果体彩网:homeowners insurance on the prope🌊rty or if the city condemns the proper🔯ty.

Home Equity Conversion Mortgages (HECMs)

澳洲幸运5官方开奖结果体彩网:Home equity conve🐻rsion mortgages (HECMs) are backed by the federal government. This is the most widely available reverse mortgage and can be used for any reason. However, it is likely to be more expensive than a traditional home loan, including high up-front costs.

Counseling is required before applying. This is meant to ensure that the homeowner is fully aware of the costs, payment options, and responsibilities involved. Interested parties are also informed about any 澳洲幸运5官方开奖结果体彩网:nonprofit or government-issued alternatives for which they might be eligible. There is usually a charge for the counseling session, which can be paid from the loan proceeds.

After the counseling session, you will find out how much you can borrow with a HECM. Your age, the value of your home, and current 澳洲幸运5官方开奖结果体彩网:interest rates determine the amount. Borrowers who are older and have higher equity will be able to get more money.

Once the loan is approve🃏d, you can choose among severaℱl payment options:

• A lump sum upfront.
• A term option that provides monthly cash advances for a specific period of time.
• A tenure option that pays monthly advances for as long as the home is your 澳洲幸运5官方开奖结果体彩网:primary residence.
• A 澳洲幸运5官方开奖结果体彩网:credit line that lets you draw from the account at any time
• A combination of a credit line coupled with monthly payments.

You can chang𒁏e your pa♛yment option for a low fee if your situation changes over time.

Proprietary Reverse Mortgages

Proprietary reverse mortgages are issued by private lenders without government backing. They can benefit homeowners whose homes are appraised at higher values and who want to borrow more money than they could with a HECM. The lending limit on HECMs is currently $1,149,825.

Counseling is sometimes required before applying, which can help provide a comparison of the costs and benefits of a proprietary loan versus a HECM. Payment works the same way as with a HECM, which means that you can choose a lump sum or a series of payments.

Because proprietary reverse mortgages are not federally insured, they do not have upfront or monthly 澳洲幸运5官方开奖结果体彩网:mortgage insurance premiums (MIPs), unlike HECMs. While that can represent a cost saving, whether a proprietary mortgage will be a better deal will depend on its interest rate and closing costs.

The Bottom Line

Reverse mortgages can be an option for homeowners who wish to tap the equity in their home without selling it or moving out. However, these loans can be expensive, and you may have other options, such as a 澳洲幸运5官方开奖结果体彩网:home equity loan or home equity🎶 line of credit, which are worth exploring before you commit to anything.