Understanding Reverse Mortgage Options

Reverse Mortgage Options

Reverse mortgages have three main loan options. They are a Home Equity Conversion Mortgage (HECM), a Proprietary Reverse mortgage, and a Single-Purpose Reverse mortgage. Each mortgage type is used for different things and has its own terms and conditions. In addition to loan types there are also different options for your payments and the repayment of the loan.

The three types of Reverse mortgages

There are several types of reverse mortgages available, including:

Home Equity Conversion Mortgage (HECM): This is the most common type of Reverse mortgage and is insured by the Federal Housing Administration (FHA). The amount of money you can borrow with a HECM depends on the age of the youngest borrower, current interest rates, and mortgage limits.

Proprietary Reverse Mortgage: This type of Reverse mortgage is not insured by the FHA and is typically used for higher-value homes. Propriety Reverse mortgages are considered Jumbo loans. They have no borrowing limit and since they are not insured by the FHA, their requirements may be more flexible than HECM mortgages.

Single-Purpose Reverse Mortgage: This type of Reverse mortgage is designed for a specific purpose, such as paying off property taxes or making home repairs. The lender must approve the purpose. This is often the least expensive type of Reverse mortgage to take out, since it is for one thing and is usually issued and insured by a nonprofit or a government agency.

Reverse mortgage payout options

Homeowners who get a Reverse mortgage can receive the payout for their equity either as a lump sum, monthly payments, a line of credit, or as some combination thereof.

• Lump sum: If you choose the lump sum option for your Reverse mortgage, you will receive the full loan amount in one payment.
• Monthly payments: Choosing monthly payments will mean that you receive a fixed monthly payment for a set period or for life.
• Line of credit: The credit line option for a Reverse mortgage gives you access to a line of credit that can be drawn upon as needed.
• Combination: Reverse mortgages offer the option to combine different payout options. For example, you could get part of the loan as a lump sum then the rest in monthly payments.

Reverse mortgage payback options

Reverse mortgages become due when the homeowner passes away, sells the home, or moves out. At that time, the loan must be repaid, including interest and fees. Homeowners and their heirs should be aware of the following payback options:

• Repaying the loan balance: The loan balance, including interest and fees, must be repaid in full.
• Using other assets: Heirs can use other assets to repay the loan balance if they wish to keep the home.
• Selling the home: The home can be sold to repay the loan balance, with any remaining equity going to the heirs.

Reverse mortgages offer several options for homeowners who are 62 or older and have significant equity in their home. By understanding the different types of reverse mortgages, payment options, and payback options, homeowners can make an informed decision about whether a reverse mortgage is right for them.