A Home Equity Conversion Mortgage (HECM) is the most common type of reverse mortgage available. It is a special type of mortgage loan only for homeowners over the age of 62. A reverse mortgage can be a great way to cover your expenses in retirement, as it allows you to access the equity you have built up in your home over time. You will need to meet certain criteria to qualify for a reverse mortgage, and you will need to repay all the money you borrow eventually. With a traditional mortgage, you make monthly payments until you have repaid the entire loan, with interest.
With a reverse mortgage, your lender pays you with a lump sum, a line of credit, or monthly payments, and your loan balance increases over time. You won't need to repay the money until you die or move out of the house. At that point, you or your heirs will generally have to sell the house to pay back the amount borrowed, plus any accrued interest and fees. The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured and regulated by the U.
S. Department of Housing and Urban Development (HUD) through the Federal Housing Authority. These loans are designed to help seniors cover their living expenses during retirement. If your savings and Social Security aren't enough to cover your retirement expenses, you may want to consider applying for a reverse home loan.
However, if you plan on leaving your home to family members when you die, other options may be more suitable. You can also use the HECM program to buy a new home. You'll need to have enough cash to make a large down payment (usually around 50% of the sale price) and pay closing costs. Once the loan is closed, it works just like any other reverse mortgage - you won't need to make monthly mortgage payments, but you must live in the house as your primary residence and keep up with taxes, property insurance, and maintenance.
The HECM buying program also allows you to buy a home in a new area without needing to make mortgage payments. If your property is worth more than the HECM mortgage limit, you can choose a reverse property mortgage. These loans are backed by private lenders, not the federal government, and are generally offered to people with more expensive properties that would be subject to HECM limits. You might hear them referred to as “jumbo reverse mortgages”.
As with an HECM, you usually only need to repay the reverse property mortgage when you die or move out of the house. However, qualification criteria, how you access your money, and fees are set by the individual lender that issues the loan. Reverse mortgages generally cost more and offer smaller loans relative to the value of your home than an HECM does. Some local governments or non-profit organizations may offer single-purpose reverse mortgages that can only be used for specific reasons such as fixing your home or paying property taxes.
These loans are generally not insured by the federal government and may only be available to people with low or moderate incomes who live in certain areas. They are usually the cheapest reverse mortgage option available. If you're concerned about cost and only need money for a limited reason, single-purpose reverse mortgages may be a good option for you. It is important to compare prices before deciding on a particular seller if you decide that a reverse mortgage is right for you.