If you’re wondering whether a reverse mortgage is right for you, here are a few basic things you need to know:
Definition
Reverse mortgage loans are a type of mortgage that allows you to borrow funds against the value of your home, says Investopedia.
Different Reverse Mortgages
Basic information about the differences in the types of reverse mortgages will help you decide on which type works best for you and your financial situation:
1. Single-purpose. This is the most affordable option you can go for. While offered by a few state and local government agencies, they’re not accessible everywhere, so you need to ask around and determine if you’ve got a nearby source. Try asking non-profit organizations, too, if they offer this loan. You can use the loan to pay off major home repairs or your property taxes.
2. Proprietary. Private loans often financially supported by companies that develop them. While single-purpose mortgages are ideal for low-to-moderate-income homeowners, this one better suits homeowners with higher home equity values. That also means you can end up with more money from the loan.
3. Home Equity Conversion mortgages. More commonly known as HECMs, these are federally-insured mortgages. HECM loans receive their financial backing from the U.S. Department of Housing and Urban Development, or HUD, and can be used to pay off your taxes, medical bills or any other major transactions that have you strapped for cash.
Consultations
Before you settle on a choice, the Federal Trade Commission says you’ll need to consult with a counselor from a housing counseling agency. You get to learn all about the advantages, costs and even alternatives to the proprietary or HECM loan you’ve set your mind on. The counselor has to come from the government’s approved list of agencies, though, so keep that in mind.
Whether a single-purpose or HECM loan is right for you, think things over carefully to make sure you end up with the decision that’s financially sound for you.
