Types of Reverse Mortgage Available

By Igor Buces in Mortgages on June 8th, 2008

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by Igor Buces

Reverse mortgages help senior citizens over the age of 62 take advantage of the equity they have accumulated in their home to make up for the loss in income. They work as a kind of loan advance on the present mortgage. However, the owner of the home doesn’t need to pay back any of the money for as long the owner stays in the home.

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 Home Mortgage

This type of mortgage is offered by non-for-profit organizations and by state and federal Government agencies. It’s the cheapest reverse mortgage to obtain. The biggest problem is that it’s harder to qualify for this loan since you must be in the lower income bracket and complete a longer application. In addition, the funds from the loan can only be used for a specific reason( repairs, improvements or property taxes.)

Federally Backed Reverse 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.

Proprietary 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.

Proprietary reverse mortgages can be very expensive. Since they don’t go through the same kind of control from the Federal Government, some private companies offering this type of loan have been know to take advantage of senior citizens by charging exorbitant fees.

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To find more information about how a senior reverse mortgage works, go to our website. In it you’ll find professional counsel on anything having to do with a reverse mortgage