What is the Difference Between a Regular Mortgage and a Reverse Mortgage?

When it comes to mortgages, there are two main types: regular mortgages and reverse mortgages. Regular mortgages are the more traditional type of loan, where borrowers make monthly payments to the lender. On the other hand, reverse mortgages are non-recourse loans, meaning that borrowers or their heirs will never owe more than the value of their home. Reverse mortgages are unique and differ from a home equity line of credit (HELOC) in several ways.

To be eligible for a reverse mortgage, borrowers must be of legal age, while HELOCs do not have this requirement. Additionally, with a HELOC, borrowers must make minimum monthly payments, while with a reverse mortgage, payments can be deferred. This optional payment feature can provide an increase in cash flow for retirement. Reverse mortgages are a way for older homeowners to borrow money based on the capital of their home.

The lender pays the homeowner in cash for the capital accumulated in their home. When the homeowner dies or moves out, the borrower or their heirs must repay the loan. The borrower must also live in the home, maintain it, and pay applicable property taxes, insurance, and fees related to homeownership. It is important to consider potential risks when taking out a reverse mortgage. Before deciding to use a reverse mortgage to pay for necessary repairs or improvements, look for different contractors and reverse mortgage companies and consider other types of financing such as home equity loans, home equity lines of credit, or refinancing your current mortgage. Reverse mortgages are backed by the Department of Housing and Urban Development and are insured by the federal government.

The lender may charge an opening fee, a mortgage insurance premium, closing costs, and management fees (which are added to the loan balance). Reverse mortgage borrowers can receive disbursements in the form of a lump sum, monthly payment, line of credit, or some combination of these options.

Harry Lammel
Harry Lammel

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