Which Type of Reverse Mortgage is Best for You?

A reverse mortgage is a loan that leverages the equity in the borrower’s home.  Many seniors use these loans to help fund retirement - whether it be outstanding bills (like home renovations or medical expenses), travel, or just peace of mind while on a fixed income.  

In today’s blog post, I’m going to review the three types of reverse mortgages available: Home Equity Conversion Mortgage (HECM), proprietary reverse mortgage, and single purpose reverse mortgage.  While these all differ in various ways, they do have several things in common.  Here’s a list of what’s required for all reverse mortgages:

• 55 years of age (or older)
• Significant equity in home
• Live in home as primary residence
• Up to date on property taxes and homeowners insurance
• Able to maintain the home from falling into disrepair

Unlike a traditional forward mortgage, the bank makes payments to the homeowner with any reverse mortgage.  These payments be issued via a few options:

• Lump sum
• Fixed payments over time
• Line of Credit
• Combination of those

Finally, all reverse mortgages become due and payable when the borrower moves out of the home or passes away.  

Let’s take a look at the types of reverse mortgages.

Home Equity Conversion Mortgage (HECM)

A Home Equity Conversion Mortgage - or HECM - is the most common type of reverse mortgage.  A HECM is federally insured and run by the Department of Housing and Urban Development (HUD).  Borrowers with home values up to $970,800 can take out a reverse mortgage, and funds can be used for any purpose.  

Proprietary Reverse Mortgage

A proprietary reverse mortgage is similar to a HECM, but these loans are privately funded.  While not insured by HUD, these loans offer a higher loan amount.  Therefore, a proprietary reverse mortgage can be an ideal choice for homeowners with high home values (above $970,800).  The lender themselves sets the loan amount and qualifications since they are not bound by government rules.

Single Purpose Reverse Mortgage

A single purpose reverse mortgage are typically offered by state and local governments or non-profits.  While this type of reverse mortgage has the lowest cost, it also includes the strictest use of funds.  As the name might suggest, funds from a single purpose reverse mortgage must be used for one purpose such as home renovations or medical bills.

If you are thinking about a reverse mortgage and still have questions, it’s best to speak to an expert.  I’d recommend contacting the team at Equity Access Group.  EAG specializes in reverse mortgages, and they can help you figure out which type of reverse mortgage is best for you.