When it comes to the basics of a reverse mortgage, you need to get a fair idea of the three types, which are single-purpose reverse mortgage, home equity conversion mortgage, and proprietary reverse mortgages. No matter which one you choose to opt for, these mortgages are designed to pay off current mortgages, pay healthcare expenses, or be used as supplementary income. Let’s take a look at the types of reverse mortgages:
Single-purpose reverse mortgage
Offered by the state and local government as well as non-profit agencies, this is an affordable option. Among the basics of a single-purpose reverse mortgage is the understanding that the usage of this mortgage is also specified by the agency offering it. This usage may range from using it to pay off property tax to funding home repair expenses or other needs. This mortgage is available for middle- and low-income homeowners to help pay smaller expenses like home repairs and taxes. A very small amount of equity is tapped with no origination fees, insurance premiums, minimal closing costs, and low interest. Also, this mortgage isn’t available everywhere, so you might have to do a lot of research to track it down.
Home equity conversion mortgage
This type of mortgage is the most prominent one in the country to help seniors convert equity in their home to cash. This type of Federal Housing Administration-insured reverse mortgage is subject to FHA limits and is based on the assessed value of your current home. In this mortgage, you get the advantage of deferred payments until the home is sold or until the death of the owner. This popular reverse mortgage offers low interest rates for borrowers, but a private sponsored one can vary in terms of the borrower’s age and the duration for which the borrower intends to stay there. Backed by the country’s Department of Housing and Urban Development, this mortgage can be a little on an expensive side. Yet, it is widely used as it has no income limitations and medical requirements policy. You can choose the payment option like term, tenure, credit line, or a combination of all three.
Proprietary reverse mortgage
Among the basics of this type of a reverse mortgage is that you can use it to borrow a large advance on a home of high value. It is advisable to consult a financial counselor to understand the nuances of the costs associated. This mortgage is not federally insured and does not provide up-front monthly payments, so you have the advantage to borrow a bigger amount. Since there is no limit for proprietary reverse mortgages, your loan can be more than $765,600 which is currently the limit for a home equity conversion mortgage. Yet you must keep a close watch on the interest rates that are in the range of 5% and 7%. The federal government has no role to play in this reverse mortgage, and you simply tap into the equity of your home.