A home equity conversion mortgage (HECM), the most common type of reverse mortgage, is a special type of mortgage loan only for homeowners aged 62 or older. A reverse mortgage loan, such as a traditional mortgage, allows homeowners to borrow money using their home as collateral for the loan. It is a common misconception that reverse mortgages are best used only as a last resort. While some other financial products are designed for only one purpose, the truth is that reverse mortgages are not a “one-size-fits-all” loan.
Over the years, these loans have evolved to offer a variety of options to fit the specific wants and needs of several borrowers, age 62 and older. Whether you are a senior homeowner interested in a government-insured loan or prefer a loan without federal insurance, there is a reverse mortgage loan available to you. If you want to access a portion of your equity with a loan that suits your high-value home, allows you to refinance your existing reverse mortgage, or combine a reverse mortgage and the purchase of a new home in one transaction, you're likely to find a match on one of the reverse mortgage loans. is described below.
Read on to learn more about the types of reverse mortgages currently available on the market today. The HECM for Purchase is a product designed to help older homeowners buy a new home that best suits their needs, while also obtaining a reverse mortgage in the same transaction. Many seniors have found this option useful when they want to buy a new home that is closer to family, smaller, or to accommodate new physical needs related to aging (such as houses with handrails, ramps and wider entrances, all on the ground floor). A great advantage of using this type of reverse mortgage is that an HECM for Purchase only incurs one set of closing costs, rather than two sets of closing costs that occur if a borrower buys a home and then separately contracts a reverse mortgage on it.
If you've ever wondered about alternatives to government-backed reverse mortgage loans, you'll be pleased to discover that not all of these types of loans are federally insured. This type of reverse mortgage is offered by some nonprofit organizations and some local and state government agencies, and is designed to be used for a specific and approved purpose, such as repairing housing or paying property taxes. Usually only a small amount of capital is used, which makes this type have a lower cost. If you're looking for the least expensive option, you'll find it with single-use reverse mortgages.
To find single-purpose reverse mortgage lenders, research your local old-age agencies, who should be able to tell you if home repair loan programs exist in your local area. If you have decided that a reverse mortgage is the right choice for you, it helps to know that you are in no way limited to just one type of loan. You have different options to get the type of loan that best suits your needs. For help determining which type would benefit you the most, call the American Advisors Group at 1-888-998-3147 and speak to one of our professional reverse mortgage experts.
Learn more about ways to improve your retirement. Enter your email address to subscribe. One of the most popular types of reverse mortgages is the mortgage conversion mortgage (HECM), which is supported by the federal government. When you have a regular mortgage, you pay the lender every month to buy your home over time.
In a reverse mortgage, you get a loan where the lender pays you. Reverse mortgages are part of the equity in your home and convert it into payments to you, a kind of prepayment of the equity in your home. The money you receive is usually tax-free. You usually don't have to pay back the money while you live at home.
When you die, sell your home or move out, you, your spouse or your estate would repay the loan. Sometimes, that means selling the house to get money to pay off the loan. Home Equity Conversion Mortgages (HECM) are the most common reverse mortgage loans. These federally insured loans allow borrowers who meet age and home equity requirements to withdraw money from their residences; the higher the value of the property, the higher the payment.
If you decide you need improvements to your home and think a reverse mortgage is the way to pay for them, look up information before deciding on a particular seller. The refinancing option was designed for older homeowners with a current reverse mortgage. With such a potentially lucrative product as a reverse mortgage and a vulnerable population of borrowers who may be cognitively impaired or desperately seeking financial salvation, scams abound. If you need a fixed amount for a specific repair or tax bill, then a single-purpose reverse mortgage is the cheapest option if you can find one.
As with any mortgage, there are conditions to keep your reverse mortgage up to date and, if you don't meet them, you could lose your home. Reverse mortgage borrowers also need to keep up with property taxes and homeowners insurance. That way, no unscrupulous lender or predatory scammer can take advantage of them, they will be able to make a wise decision even if they get a poor quality reverse mortgage advisor, and the loan will not bring unpleasant surprises. Your responsibilities under reverse mortgage rules are to keep up with property taxes and homeowners insurance (and homeowners association fees, if any) and to keep the home in good condition.
If you get a reverse mortgage of any kind, you get a loan in which you apply for a loan against the equity of your home. Rather than being supported by the federal government, proprietary reverse mortgages are backed by private lenders. If you find the idea of a reverse mortgage appealing, it is essential to understand exactly how the loan works and what is required of the property owner. You should remember that, as with conventional mortgages, reverse mortgages come in different flavors.
A reverse mortgage can be a useful financial tool for older homeowners who understand how loans work and what compensations are involved. You should explain how a reverse mortgage might affect your eligibility for Medicaid and Supplemental Security Income (SSI). While reverse mortgages don't have income or credit rating requirements, they do have rules about who qualifies. The counselor should also explain possible alternatives to an HECM, such as government and non-profit programs, or a single-purpose reverse mortgage or property.
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