Are you looking for money so that you can pay off your mortgage, finance a home improvement, pay for healthcare expenses, or supplement your retirement income? If you are, then you should start considering a reverse mortgage. This is a loan that would enable you to convert a part of your home equity into cash without the need to sell your home or perhaps pay any additional monthly bills.
The FTC or Federal Trade Commission, which is a protection agency for consumers, advice individuals to understand first how these reverse mortgages work, what are the different types of reverse mortgages, and how to get the best possible deals.
If you have a ‘normal’ mortgage, it is you who make payments to your lender. However, in a ‘reverse’ mortgage, you will receive money from the lender and you will not be required to pay back the money as long as you are still living in your home. The loan is then repaid once you die and your property is sold, or when your home is not considered to be your primary residence anymore. The proceeds that these reverse mortgages make are usually tax-free and a lot of reverse mortgages no longer have income restrictions.
Different Types of Reverse Mortgages
- Single-Purpose Reverse Mortgages – This is offered by a few states and local government agencies as well as nonprofit organizations.
- Federally-Insured Reverse Mortgages – This is known as the Home Equity Conversion Mortgages (HECMs) that is backed up by the Department of Housing and Urban Development (HUD) of the U.S.
- Proprietary Reverse Mortgages – These are private loans that are backed up by the different companies that are responsible for developing them.
How do You Get the Best Deal for Your Reverse Mortgage?
If you are thinking of getting a reverse mortgage then you shop around first. Make sure to compare all your options and the terms that the various lenders offer. Learn all the possible things about reverse mortgages before talking to a lender or a counselor. Ask questions since this will give you more information and might lead you to getting a much better deal.
- If ever you need to make a home improvement or repair, or if you need any help to pay your property taxes, then try to see if you can get a low-cost single-purpose loan in your locality. The Area Agencies on Aging or the AAA usually knows about these programs. Once you have an agency, make sure to ask about programs that cater property tax deferral, loan or grant programs intended for home repairs or improvements, or property tax postponement. Also ask about how the process of applying goes.
- Keep in mind that all HECM lenders should be following the rules set by HUD. Now, while mortgage insurance can be the same from one lender to another, loan costs, including the original amount, interest rate, the closing costs, and the servicing fees vary among these lenders.
- If you live in a property that has higher value, it is possible for you to borrow with a proprietary reverse mortgage. However, the more you borrow, the higher the cost will be. In order for you to see the big difference between a proprietary and an HECM loan is to conduct a side by side comparison to all its costs and benefit.
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