Reverse mortgage has become a popular financial planning tool because it allows homeowners to have a portion of their home equity turned into cash without losing home ownership. Here is a brief breakdown of what reverse mortgages is, the several types offered, and several advantages of using this type of loan.
What is a reverse mortgage?
With this particular type of loan, the homeowner actually receives monthly payments from the lender and has the ability to tell them how much they want deposited each month. However, while reverse mortgages allow you to receive money right away, the overall amount that you owe will increase similar to that of a credit card.
Who offers reverse mortgages?
Reverse mortgages are offered by a wide variety of lenders and institutions. Although, wherever you decide to find a lender, they will first make a valuation of your house to see how much it is worth as well as how much you owe. Then, the lender will be able to let you know how much you can receive based on your home equity.
Types of Reverse Mortgage
There are three primary types of reverse mortgage:
- Home Equity Conversion Mortgage (HECM)
This type of reverse mortgage is managed and regulated by the U.S. Department of Housing and Urban Development (HUD) as well as the FHA. The loan involves a 1.25% insurance fee per year that serves to protect the lender from loss and the borrower in case the lender fails to make a monthly payment.
- Proprietary Reverse Mortgages
This type of loan is insured by private companies and has a loan limit of $625,500.
- Single-Purpose Reverse Mortgages
The third type of reverse mortgage can only be utilized for a specific purpose that the borrower must disclose prior to applying. These types of loans are usually offered by local or state governments as well as non-profit organizations.
Benefits of Reverse Mortgage
Reverse mortgages involve many benefits that outweigh the cost of mortgage insurance as well as appraisal fees. A few of the advantages include improved monthly cash flow, non-taxable proceeds, disbursement options, and retaining ownership of your home. Additionally, reverse mortgages offer an efficient way for retirees to get money.
In order to qualify for a reverse mortgage, you must be 62 years of age or older, own the house in question, and the house must also be your primary residence.
While this type of mortgage isn’t for everyone, it can be very beneficial to those who qualify. It’s important to work with a reliable mortgage broker like HomeRate Mortgage. We offer quick quotes, low rates, and fast closing times. Call us at 844-805-9100 for more information or fill out this form for a quick quote.