Overview
There are a variety of reverse mortgages types. However, typically a reverse mortgage is a loan for seniors age 62 and older. The general definition for a reverse mortgage is a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. Reverse mortgage loans are commonly used to pay for home renovations, medical and daily living expenses. Homeowners who have an existing mortgage often use the reverse mortgage loan to pay off their existing mortgage and eliminate monthly mortgage payments.
Types of Reverse Mortgages
If you’re 62 or older – and want money to pay off your mortgage, supplement your income, or pay for healthcare expenses – you may consider a reverse mortgage. It allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills.
Home Equity Conversion Mortgages (HECMs)
HECMs are federally-insured reverse mortgages and are backed by the U. S. Department of Housing and Urban Development (HUD). HECM loans can be used for any purpose.
Single-purpose reverse mortgages
Single-purpose reverse mortgages are offered by some state and local government agencies, as well as non-profit organizations, but they’re not available everywhere. These loans may be used for only one purpose, which the lender specifies.
Proprietary reverse mortgages
Proprietary reverse mortgages are private loans that are backed by the companies that develop them. If you own a higher-valued home, you may get a bigger loan advance from a proprietary reverse mortgage.
How to Qualify for a Reverse Mortgage
The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, & make home improvements
General Eligibility
At least 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home.
Property Eligibility
To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible
Heirs Eligibility
When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs
Fees & Costs
Reverse mortgage lenders generally charge an origination fee and other closing costs, as well as servicing fees over the life of the mortgage. Some also charge mortgage insurance premiums
How Reverse Mortgage Payments Are Received
Most reverse mortgages today are insured by the Federal Housing Administration (FHA) as part of its Home Equity Conversion Mortgage (HECM) program. With a HECM loan, you can receive your money in a variety of ways:
Lump Sum
For fixed HECMs, you can receive a one-time single lump sum disbursement at the mortgage closing
Term
With a term reverse mortgage payment option, you will receive equal monthly payments for a fixed period of months selected
Tenure
Receive equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence
Modified Term
A combination of line of credit plus monthly payments for a fixed period of months selected by the borrower
Modified Tenure
A combination of line of credit and scheduled monthly payments for as long as you remain in the home
Line of Credit (LOC)
Receive unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted