Types of Reverse Mortgage Available
Seniors over 62 can take advantage of the equity they have build in their home by applying for a reverse mortgage. A reverse home loan can help seniors because it works as a loan advance. With this type of loan, the owner doesn’t need to make monthly payments back to the bank and doesn’t need to pay back any of the money for as long as the owner lives in the property.
In the US, the owner of the home never needs to repay the mortgage and can not be thrown out of the house because lack of payments since there are not any. The owner can receive the money as a one time payment, monthly payments or as a credit line.
There are basically three different types of reverse mortgages that owners can apply for: a single purpose reverse home mortgage, a federally backed reverse mortgage or a privately issued reverse mortgage.
Single Purpose Reverse Mortgage
A single purpose reverse mortgage is offered by Government agencies and non-profit organizations. It’s the most inexpensive of the three types of reverse mortgages. The problem with this type is that they are harder to qualify for and the owner must have a small income. It also requires that the funds from the loan are used for a specific purpose (improvements, repairs or property taxes.)
Federally Insured Reverse Home Mortgage
The HUD (U.S. Department of Housing and Urban Development) insures this reverse mortgage. This kind of reverse mortgage is also known as a Home Equity Conversion Mortgage (HECM.) It is a loan slightly more expensive than the single purpose one.
The biggest plus of this loan is that you can use the proceeds from it for any purpose you want. It is also easier to get and it’s available to homeowners all over the country. This kind of reverse home loan is by far the most common.
Private Reverse Mortgage
This kind of reverse home loan is available through private companies that haven’t been HUD certified. They usually have the same requirements than a federally insured one.
The biggest drawback is its cost. Since it doesn’t need to comply with federal regulations, companies can get away with charging to much money to unsuspected senior citizens.
