Understanding And Selecting Reverse Mortgages - part 1
by Bob Hartz
What's a reverse mortgage? In a nutshell, it's this. In a regular mortgage, you make monthly payments to the lender. But in a "reverse" mortgage, you receive money from the lender and generally don't have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor; they have become an important resource to our senior population.
There are three versions of the reverse mortgage. They include single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; Home Equity Conversion Mortgages (HECMs) which are a federally insured HUD product; and proprietary reverse mortgages, which are issued by commercial mortgage lenders.
Single-purpose reverse mortgages are not available everywhere. In states and cities that offer them, they are a very low cost arrangement and usually available only to low and moderated income households. However they can only be used for one purpose specified by the government or nonprofit lender - for example, to pay for home repairs, improvements, or property taxes.
There are no limitations on the use of funds generated by HECMs or proprietary reverse mortgages, and they are available everywhere. They are more expensive than single-purpose reverse mortgages and their up-front costs can be high. The amount you can borrow with either of these models depends on a number of factors but generally speaking, the older you are and the more equity you hold in the home the more you can borrow.
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Understanding And Selecting Reverse Mortgages
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