Reverse Mortgages Are Not All The Same- Avoid Being Fooled

For senior citizens seeking a stable source of income, a reverse mortgage may be a good option. A unique type of mortgage available only to senior citizens of 62 years of age or older, a reverse mortgage is essentially a loan against the equity of a home. Whereas in a traditional home loan mortgage, a borrower's income is used to pay back the loan and increase equity in their home, a reverse mortgage works practically in the exact opposite way; it converts equity built up in a home as regular cash loans paid by the lender to the borrower. There are both advantages and disadvantages to reverse mortgages, but for any senior considering getting one, it's important to realize that not every reverse mortgage is the same. To prevent being fooled by lenders, one should become familiar with the three primary types of reverse mortgages: a single purpose reverse mortgage, a home equity conversion mortgage, and a propriety mortgage.

Single Purpose Reverse Mortgages

Backed by state and local governments and typically given to senior citizens with moderate incomes, the single purpose reverse mortgage is designed to assist the senior with meeting certain financial obligations associated with the home, like renovations, repairs, and paying taxes. They are not available everywhere, and although they generally entail low costs, they have a number of limitations linked to the aforementioned conditions.

Home Equity Conversion Mortgage

Also referred to as the HECM, the home equity conversion mortgage is guaranteed by the U.S. Department of Housing and Urban Development and is insured by the federal government. Unlike the single purpose reverse mortgage, the HECM is more widely available and tends to be more costly, but it involves no medical or income requirements and can be used for any purpose. Also, it will be necessary to meet with a counselor to get all the necessary information regarding costs and risks.

Propriety Mortgage

Although similar in nature and cost to the HECM, the propriety mortgage is given by private companies, and unlike the HECM, a meeting with a counselor is not mandatory.