A reverse mortgage is a loan meant for homeowners aged 62 or more. As part of a reverse mortgage, homeowners can convert a chunk of their equity into cash. This mortgage was conceived as a method to aid retirees with limited income. This would help them utilize the accumulated wealth in their homes for everyday living expenses and healthcare. Serve this article as a reverse mortgage guide that explains the types of reverse mortgages.

Single-purpose reverse mortgage
This mortgage is mainly provided by non-profit organizations or local and state agencies. This is one of the most inexpensive reverse mortgages, and while granting the mortgage, the agency or organization will provide a specific purpose. Homeowners can utilize this mortgage’s proceeds solely to pay for the particular lender-approved item, such as paying for property taxes or conducting home repairs.

Home equity conversion mortgage (HECM)
This form of a reverse mortgage is more expensive than the traditional home loan and is federally insured. It implies that the United States Department of Housing and Urban Development backs the mortgage with high upfront costs. Since no medical requirements or income limitations exist, this is one of the most widely used reverse mortgage options.

• Before applying for the home equity conversion mortgage, you must seek counseling. This is vital to ensure that the homeowners feel educated on all aspects of the mortgage, such as responsibilities involved in the loan, payment options, and the cost. In this counseling session, the homeowners will be informed about any government-issued alternatives or non-profit organizations they are eligible for. They also explain the differences between the home equity conversion mortgage, proprietary reverse mortgage, and single-purpose reverse mortgage to help you make an informed choice. This counseling session is paid for, and you can pay for it directly via your loan proceeds.
• The prevailing interest rate, your home’s value, and your age determine how much you can borrow. Older homeowners who have higher equity are eligible for a more significant sum of money. For best results, you must owe as little as possible.
• After the loan amount is established, you can decide between various payments, such as a credit line, which allows you to draw money from the account at any point in time, a tenure option wherein you receive monthly advances till the time your home is your primary residence, and a term option, wherein the lending agency provides monthly cash advances for a decided period. Alternatively, you can even opt for monthly payments and credit lines. You can conveniently change your payment option at a very minimal fee.

Proprietary reverse mortgage
For senior homeowners with high-valued properties seeking a higher sum of their equity, the federally-set borrowing limit of the home equity conversion mortgage might be curtailing. To keep up with the needs of this class of homeowners, there is the proprietary reverse mortgage, or the non-Federal Housing Administration reverse mortgage. The banks and lending agencies back the proprietary reverse mortgage. They do not have any specific requirements per the HECM reverse mortgage regulations. They also do not need an insurance premium. Generally speaking, the fees in a proprietary reverse mortgage are lower, but the interest rate is more than you may bear in the HECM. Also, in this case, the proceeds are unavailable in various disbursement options, such as a line of credit or monthly payment.