Reverse mortgages are slowly coming under the limelight, but for many years people were in the dark when it came to understanding what they offered. Reverse mortgages are a great means of getting finance so do read on to understand the basics of a reverse mortgage.
What exactly are reverse mortgages?
A reverse mortgage involves the homeowner getting an amount for their house’s equity. Instead of paying a monthly installment, the mortgage lender would give the owner of the house a monthly installment, or a big lump sum.
The owner of the house has to then pay back the balance, which increases as time passes by. This payment is done once they sell the house, move out, or pass away. The property is held as collateral in both traditional mortgages as well as reverse mortgages. A reverse mortgage can only be availed by senior citizens of the age of 62 years or more.
What are the different types of reverse mortgages?
There are three types of reverse mortgages, namely single-purpose reverse mortgages, proprietary reverse mortgages, and home equity conversion mortgages.
This type of mortgage is considered to be the most economical choice among all the types of reverse mortgages. The funds collected from this mortgage are extremely restricted. As the name suggests, the owners of the house are only permitted to use this mortgage for a specific purpose that has to be certified by the mortgage provider, which is mostly for repair costs for the house or to clear off your property taxes. A single-purpose reverse mortgage has no compulsion to be paid back until and unless the house is sold or the homeowner dies.
This type of reverse mortgage is slightly more expensive than the rest since this home equity conversion mortgage is backed by the US Department of Housing and Urban Development. This mortgage is used a lot since it does not have any medical requirements, nor does it impose any kind of income limitations. Unlike a single-purpose reverse mortgage, home equity conversion mortgage money can be put to use for any financial need of the borrower with no external interference.
After understanding the basic of reverse mortgage, these mortgages are not insured by federal insurance, so there is no kind of upfront or even monthly insurance charges to be paid. The owner of the house can even borrow much more than usual if the home in question has a high value. Yet, be warned that the mortgage providers for a proprietary reverse mortgage could charge you an increased interest rate as there is no insurance.
While choosing among these mortgages, be sure to understand the basics of a reverse mortgage and compare the different loan plans that each mortgage provider is offering before you choose to go with one. Most borrowers tend to get confused between opting for a proprietary reverse mortgage and a home equity conversion mortgage so do shop around for the best rates before choosing one.