Reverse mortgages are instances where you mortgage your home in exchange for loan payments that are usually made in staggered amounts. You are given the right to continue living in your home as long as you pay the taxes continue maintaining the property.
When you die, decide to sell the house, or move out, your spouse or your estate will need to pay for the loan. Reverse mortgage loans are often used to be a source of income as the payments can be given on a staggered basis.
Reverse loans have three types. Reviewing them will help you decide which type of reverse loan will fit you well.
- Single Purpose – this type of reverse loan show a specific purpose for the amount of money being received as a loan. The loan amount that is received may be used for repairs, maintenance, improvements or even realty taxes paid. This is often taken by individuals who have low to moderate income. They supplement the reverse mortgage to pay for additional expenses of maintaining a home.
- Proprietary – as the name suggests, these loans are being supported by proprietary institutions that developed the property. Proprietary reverse mortgages are not insured by the government and become limited to the amount of risk that a lender is willing to take. The amount of loan will be estimated from the amount of the property’s appraised value which can be a big amount of money. Unlike the single purpose reverse mortgage, the proceeds can be used for anything the homeowner. This includes
inpaying off the existing mortgage that the property is in. This type of reverse mortgage is not as common as the third type of reverse mortgage discussed below.
- Home Equity Conversion Mortgage (HECM) – This is the most common reverse mortgage that is being offered. Similar to the proprietary reverse mortgage, the proceeds can be used for anything that the mortgagee wants. Home Equity Conversion Mortgage (HECM) as the name implies allow the homeowner to convert the equity value of the property into cash. The amount is based on the appraised value of the property and the age of a borrower which is often granted to senior members of the society.
Reverse mortgages are ways that can be used to create cash and secure the property without having to leave and allow the borrower to use the home until they die or until the home is sold.