A reverse mortgage is designed to allow elderly individuals to borrow against the equity they have in their home. It essentially allows you to enjoy the money you would get from selling your home while still living in your home. With a reverse mortgage, monthly payments are not required. You get to pay back the mortgage either when you sell the home or when you die and your estate settles the loan. When it comes to getting a reverse mortgage, there are actually a couple types of reverse mortgages on the market.
Option #1: FHA-Backed Mortgage
The HECM (home equity conversion mortgage), is what most people are talking about when they refer to a reverse mortgage. A HECM is actually backed up by the Federal Housing Administration (FHA), which means it is a government-backed and -regulated loan.
With a HECM loan, there are actually a few different ways that the money can be dispersed to you. You can get all the money at once in a lump sum, or you can choose to get a fixed amount each month for a set period of time. You can also just get a line of credit you can use on your home, or you can combine the different options and get a small line of credit as well as small monthly payments.
The different payment options allow you to get the money from your home in a way that makes sense for your needs. Regardless of how you get the money, you have to pay the money back when you sell the home or have your estate settle the loan when you die.
Option #2: Private Financing
The final type of reverse mortgage is probably the least common type. This is the type of reverse mortgage is offered through private lenders. Private lenders tend to prefer to work with individuals who are in high-value homes, such as homes that are valued over $500,000 or more. These types of mortgages may offer more flexibility in paying back the lender and more flexibility with how the money is dispersed over time.
Option #3: Local Government or Non-Profit Mortgage
The single-purpose reverse mortgage is a little different than a HECM. It is not backed by the FHA. Generally, these types of mortgages are offered by local governing bodies instead of the federal government. Additionally, some non-profit agencies also offer these types of reverse mortgages.
With this type of mortgage, there are restrictions on what you can use the money for. These types of mortgages often allow you to use the money with a narrow scope. For example, you can use the money specifically to pay off the property taxes on your home each year. Or you can use the money for a specific approved home renovation project.
When it comes to reverse mortgages, be sure to carefully examine the three options available to you and figure out which one works best for your situation.
