The Three Types of Reverse Mortgages
A reverse mortgage can make good financial sense if you’re a home owning senior with equity built up in your home, and you need immediate access to some quick cash for any reason whatsoever.
A senior home owner, who is of age at least 62, can transform his existing home equity into instant cash. The home or house can have some preexisting mortgage as well. By taking out a reverse mortgage, the senior gets access to tax-free funds. Other benefits of American citizenship, like Social Security, are not affected by taking out a real life reverse mortgage. The senior home owner need not give up the title to the house or property he or she is living in.
Just like any other normal mortgage on house property, the senior may be responsible for paying some fees and closing costs to obtain a reverse mortgage loan. But unlike a traditional home equity loan, the principal or interest is not due until the senior sells the home, or moves out of the home. The senior home owner still needs to pay the normal property taxes and home owner insurance if any taken for the home or property in which he or she is living in.
When a senior home owner takes a reverse mortgage, there is no need to worry about passing on debt to estate or heirs. If the home owner passes away before the reverse mortgage is fully paid off, the loan is to be repaid from the remaining estate. Any remaining equity from the home estate will go to the legal heirs. Other estate assets will remain as is.
If you want to take a reverse mortgage on your property, you may want to check if it contains a “non recourse” clause.
The three basic categories of reverse mortgages available include:
Single-Purpose Reverse Mortgages - these are taken from government agencies and not for profit organizations. They cost low and are intended for seniors with low to medium income levels. They can be used only for some purposes defined by the agency or organization that gives the reverse mortgage loan. Seniors can take these loans for specific purposes like doing home improvements or paying off other accumulated debts.
Home Equity Conversion Mortgages (HECM) - these are federally insured and government-backed. They are given by the HUD (Dept. of Housing and Urban Development) arm of the US Government. As a senior home owner, you need to consult with a loan counselor of an independent housing agency who can explain all about reverse mortgages and answer any of your queries and decide whether reverse mortgage is what you really need. If you are to move to a nursing home or need other medical care, your loan is not due until a year after you leave the property.
Proprietary Reverse Mortgages - These are offered by private money lending companies.
The age, income and the value of the property belonging to the senior home owner will be the deciding factors of the amount of cash the borrower can qualify for, using the reverse mortgage system.
The money obtainable through taking a reverse mortgage can be very useful during retirement or twilight years. Extra monthly income receipts can be got in the form of monthly cash availability or as new lines of credit, when reverse mortgages are taken by American senior home owners.
