Finding A Mortgage Structure That Works: Reverse Mortgage Types

Though not right for everyone, there are many senior homeowners that can benefit from a reverse mortgage, especially those that have lost substantial amounts of money in the recent financial crisis.

Reverse mortgages come in three kinds: single-purpose loans, home-equity conversion mortgages, and private reverse mortgage.

Single-purpose loans-those offered by state and local government agencies and nonprofit organizations, is by far the most common reverse mortgage type. They are granted to seniors for the purpose of lifestyle maintenance, home improvements, and other major expenses. Single-purpose loans are typically a lower cost option compared to HECM’s and private reverse mortgages
HECMs are sponsored by the Department of Housing and Urban Development and can be used for any purpose that the borrower wishes. One of the best things about a reverse mortgage is that there are no health, income, or medical restrictions to qualify. The only qualifications are that you be 62 years of age or older, in addition to either completely owning your home or have a current mortgage loan balance that is low and can be paid off with proceeds from the loan.

Private reverse mortgages are loans that are developed and backed by private lenders, not the government. If considering a reverse mortgage from a private lender, it is important to carefully scrutinize the mortgage contract and terms, as many of the lenders who previously sold subprime loans now sell reverse mortgages. However, there are still a lot of trustworthy and reliable lenders available, and with a good credit rating and a substantial amount of equity, you will be able to qualify for the best terms.

Do remember that regardless of type, your reverse mortgage will become fully due if you decide to move. Also keep in mind that there are high upfront fees and charges that borrowers usually incur with reverse mortgages. It would be wise to not borrow the full amount of your home’s equity if you plan to move in the future or want to leave your home to your heirs.

As with any type of loan, if you are thinking of taking out a reverse mortgage, be sure to speak with a financial counselor to discuss goals and qualifications.