A reverse mortgage property, unlike HECM, is not backed by the government. Since the federal government doesn't insure the loan, you'll have to go through a private company. Homeowners who choose this type of reverse mortgage will need to prepare for significantly higher interest rates than if they chose a federally insured loan. The flip side is that a patented reverse mortgage attracts those with more expensive homes.
No regulation translates into higher loan amounts and, in turn, more funds when you need them most. According to the FTC Consumer Information page, you may qualify for additional funds if your home has a higher appraised value and you have a small mortgage. Homeowners are limited to one lump sum payment with reverse property mortgage. But you won't have to worry about an insurance premium like you would with a home equity conversion mortgage.
You may have difficulty finding an organization that offers a single-purpose reverse mortgage. This type of loan is only available from non-profit organizations and state and local government agencies. While homeowners are free to spend their funds on whatever they want with the two previous loans, there are rules and limitations with the single-purpose reverse mortgage. 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. The home equity conversion mortgage, also known as HECM, tends to be the most popular type of reverse mortgage among homeowners. In fact, in some situations, it is illegal to require you to buy other products in order to obtain a reverse mortgage.
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. However, keep in mind that although private reverse mortgages are not subject to many of the federal regulations governing HECM loans, individual lenders may have their own requirements for borrowers. The most popular type of reverse mortgage is the federally insured mortgage conversion mortgage, also known as HECM. A reverse mortgage can deplete the equity in your home, meaning fewer assets for you and your heirs.
The closing costs and interest rates of home equity loans and HELOCs also tend to be significantly lower than what you'll find with a reverse mortgage. But before you apply for such a loan, it is important to understand the different types of reverse mortgages. The popularity of reverse mortgages is increasing among seniors who have equity in their homes and want to supplement their income. If you own a higher value home, you may receive a larger loan advance on a reverse property mortgage.
Single-purpose reverse mortgages are similar to HECM loans in some respects, but differ in other critical respects. Typically, this type of reverse mortgage is used to pay property taxes, home repairs, or homeowners insurance premiums. In addition, if the value of the home appreciates and is worth more than the balance of the reverse mortgage loan, you or your heirs can receive the difference, Boies explains. Keep in mind that the interest rate for reverse mortgages tends to be higher, which can also increase your costs.
Private loans above the HECM limit, often called jumbo reverse mortgages, are a way for high-value homeowners to access the benefits of a reverse mortgage, even if their home is valued at an amount above the HECM limit. 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. . .