Reverse mortgages are an investment tool that can help you manage your cash flow. The types of reverse mortgage loans is determined by the needs and goals of each individual homeowner, so it’s important to make sure you’re aware of which option might be right for you before committing.
As a senior citizen nearing retirement age there may come a time when more financial independence becomes necessary; if this sounds like something where having as much control over your finances would benefit from then consider what kind pf reverse mortgage could best suit your situation: fixed rate, adjustable or equity-based?
Types of Reverse Mortgage Loans
Single-purpose Reverse Mortgages: Recent research has shown that single-purpose reverse mortgages are the least expensive option. They’re offered by some state and local government agencies, as well as non-profit organizations but they can’t be used everywhere due to geographical restrictions. These loans may only be used for one purpose which is specified by the lender of choice such a property taxes or home improvement costs. Most homeowners with low or moderate income qualify for these types of loans in addition to anyone who wants an affordable payout plan when it comes time to sell their house so long at there’s equity left after all other debts have been paid off.
Proprietary reverse mortgages offer individuals the opportunity to have their home pay for them in retirement. If you own a higher-valued property, it’s possible that your loan will be larger than what is commonly available from traditional lenders. You can also get more money now if you don’t want to wait until all of your equity has been paid off on the mortgage lender and are looking at retiring soon.
Home Equity Conversion Mortgages (HECMs) are federally-insured reverse mortgages that can be used for any purpose. With HECMs, your home equity is converted into cash when you need it most – in retirement or as a way to make ends meet during tough financial times.
HECMs and proprietary reverse mortgages can be more expensive than traditional home loans, but they are also an excellent investment if you plan to stay in your home for a long time. That’s because there is no need to pay any interest on the loan while it’s being used as collateral for equity cash flow from rental properties or other investments that generate income without tax liability. How much you’ll pay depends heavily on factors like how old you are when the loan is secured (the older one is at the start of repayment period, usually 10 years), and whether property will have value after repaying mortgage debt with proceeds funds from sale later.
The amount that must be paid back varies depending largely upon your age when securing a HECM Loan – which may vary up to 10 more years than if conventional refinancing had been utilized initially; also in consideration for this type of transaction it’s important to explore what happens should there not be any equity left over once paying off all debts incurred?
Factors to Consider
Several factors to consider when choosing a HECM loan according to the FTC:
- your age
- the type of reverse mortgage you select
- the appraised value of your home
- current interest rates, and
- a financial assessment of your willingness and ability to pay property taxes and homeowner’s insurance.
As you age, your equity in a home can increase. In the event that one is interested in applying for a reverse mortgage to receive money from their property now or later on down the road, it may be advantageous to do so as they get older and have more of an income coming into them than before.
Before applying for a HECM, you must meet with an independent government-approved housing counselor. Some lenders offer proprietary reverse mortgages and require counseling as well to be sure that the client fully understands what they are signing up for before making any commitments.
The counselor is required to help you compare the costs of different types of reverse mortgages and tell you how different payment options, fees, and other costs affect the total cost of a HECM loan. The counselor should be able to explain these financial implications in an informative manner so that they are easy for anyone who may not have much knowledge about loans or finances.
By having a HECM, there is no set income requirement. However, lenders will assess your willingness and ability to meet obligations by considering the mortgage requirements that they are evaluating when deciding whether or not you should be approved for this loan. Quite often, the lender requires that funds be set aside from a reverse mortgage loan to pay things like property taxes, homeowner’s insurance and flood insurance (if applicable). If this is not required, you can still agree for your lender to make these payments. With some sort of “set-aside” or agreement with the company paying those bills as well – any money spent on them will go against what you’re getting in terms of cash back. You’re also responsible for maintaining your home while being given a chance at its equity.
A HECM loan lets you choose among several payment options:
- A single disbursement option may not be appropriate for everyone, and it typically provides less money than other HECM options.
- A term option is a fixed monthly cash advance for a specific time. Term options are similar to payday loans, but they work more like traditional mortgage payments. You make repayments on your loan each month until you’ve paid it off in full or the money runs out – whichever comes first!
- You may be eligible for a “tenure” option. This is where you can get monthly cash advances as long as you live in your home!
- With a line of credit option from your reverse mortgage loan, you can draw money at any time and in the amount that suits you. This type of financing limits how much interest is imposed on your loans because it only charges interest for exactly what’s been borrowed–not more.
- A combination of monthly payments and a line of credit.
You may also be able to change your payment options for a small fee.
HECMs provide bigger loan advances at a lower total cost than proprietary loans do. In the HECM program, borrowers can live in nursing homes or other medical facilities for up to 12 consecutive months without paying back their mortgage debts before they must repay them. Taxes and insurance still have to be paid on your home so that it is maintained while you stay there too!
With HECMs, there are limits on how much you can take out the first year. A lender will calculate for you how much money they think is appropriate to borrow based your age and other factors like interest rates etcetera in an evaluation of your finances.
A federally insured reverse mortgage loan will only allow you to take out up to 60% of your initial principal limit the first year. There are exceptions, though!
Want to discuss your Reverse Mortgage Loan type options?
If you are looking for a federally-insured Reverse Mortgage loan and are not interested in dealing with any national company that does everything by mail. Give us call at 410-788-7070 to see how we can help! We handle loans in Maryland, Washington DC area as well as Virginia so there is no need for you to be worried about traveling just because of your busy schedule or being away from home!
