What Are The 3 Types of Reverse Mortgages?

Have you ever wondered about the different types of reverse mortgages available? Uncovering the various options can help make an informed decision. Take a moment to explore the possibilities and find the best fit for your needs.

Reverse mortgages are increasingly popular financial products designed to help homeowners unlock the equity in their homes without having to sell or move out. Understanding the types of reverse mortgages can guide you in choosing the right one for your situation and financial goals.

Home Equity Conversion Mortgage (HECM)

The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is federally insured by the U.S. Department of Housing and Urban Development (HUD). This option is available to homeowners aged 62 and older, and it offers several payout options, including monthly payments, a line of credit, or a lump sum.

An HECM is popular due to its flexibility and government backing. Key features include:

• Government insurance to protect both lenders and borrowers
• Various disbursement options to cater to different financial needs
• Non-recourse loans, ensuring borrowers do not owe more than the home’s value

Before choosing an HECM, it is essential to weigh the benefits against the costs, such as mortgage insurance premiums and closing expenses.

Proprietary Reverse Mortgages

Proprietary reverse mortgages are offered by private lenders and are not backed by the government. These products may be suitable for homeowners with high-value homes, as they can offer larger loan amounts than HECMs.

While proprietary reverse mortgages provide more flexibility in loan amounts, they also have unique considerations:

• Potentially higher loan limits for high-value homes
• No government insurance, posing a greater risk for lenders
• Independent eligibility requirements set by private lenders

It is advisable to compare proprietary reverse mortgages from different lenders to find the most favourable terms and conditions.

Single-Purpose Reverse Mortgages

Single-purpose reverse mortgages are the least common option, typically offered by state and local government agencies or nonprofit organisations. They are designed for a specific purpose, such as home improvements or paying property taxes.

These loans usually have lower costs but come with specific usage restrictions:

• Restricted to specific purposes as defined by the lender
• Lower costs compared to other reverse mortgage types
• Limited availability depending on location and eligibility criteria

Single-purpose reverse mortgages can be an excellent choice for those who need funds for a particular home-related purpose and meet the eligibility requirements.

Sources:
1. U.S. Department of Housing and Urban Development (HUD)
2. National Reverse Mortgage Lenders Association