Reverse Mortgage Types
By: Sanjeev Varma
Dwindling incomes, rising inflation and crushing taxation laws make it imperative that at some point of time in one’s life and especially so during one’s retirement, one is left seeking money to finance a home improvement, pay off a current mortgage, supplement retirement income, or pay for health care expenses and one looks for ways and means to meet these needs without a major upset to one’s financial status. Reverse Mortgage has proved to be a welcome option sought by many older Americans considering that it allows homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.
As opposed to regular mortgage wherein one makes monthly payments to the lender, in a "reverse" mortgage, one receives money from the lender and generally does not have to pay it back for as long as one lives in one’s home. Instead, the loan is recovered in the event of one’s death, sale of property, or when one no longer occupies that property as one’s principal residence. Reverse mortgages can help homeowners who are rich in real estate but short on cash stay in their homes and still meet their financial obligations.
To qualify for most Reverse mortgages, you must be at least 62 and live in one’s self owned home. The proceeds of a reverse mortgage are generally tax-free, and many reverse mortgages have no income restrictions.
Three Types of Reverse Mortgages
There are three basic types of reverse mortgage, the first being the Single-purpose reverse mortgage, which is offered by some state and local government agencies and nonprofit organizations. Single-purpose reverse mortgages generally have very low costs, are not available everywhere, and can only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, one can qualify for these loans only if one’s income is below a specified level.
Then we have the federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the Department of Housing and Urban Development.
The amount of money one can borrow with an HECM or proprietary reverse mortgage depends on several factors, including one’s age, the type of reverse mortgage selected, the appraised value of one’s property, current interest rates, and one’s location.
HECMs and proprietary Reverse mortgages tend to be more costly than other home loans. They are widely available, have no income or medical requirements, and can be used for any purpose.Lastly, there are the proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.
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