3 Types of Reverse Mortgage
A reverse mortgage enables homeowners of the age 62 and above to convert part of the equity in their Whidbey Island homes into tax free cash without having to sell the home, give up the home ownership rights or make any new monthly mortgage payment. The name of this loan is aptly chosen because the payment stream is reversed. Unlike normal mortgage loans, where you make monthly payments to the lender, here your lender makes payments to you.
The homeowner's obligation to repay the loan is deferred until the owner dies, or the house is sold or the owner leaves.
The 3 types of reverse mortgages are:
- 1.Single-purpose reverse mortgage: This kind of mortgage is taken from local government agencies and not from non-profit organizations. Their cost is low and is intended for seniors with a low or moderate level of income. These loans are not available everywhere. The purpose of this type of mortgage is to help the homeowner with doing some improvements or paying off some other accumulated debts.
- 2.Home Equity Conversion Mortgages (HECM):This kind of reverse mortgage is backed by the US Department of Housing and Urban Development (HUD). Here you need to meet a counselor of an independent housing agency and know whether reverse mortgages are the right option for you. This kind is costlier than single-purpose reverse mortgage as it is not restricted to a single usage.
- 3.Proprietary reverse mortgage: These are private loans that are only backed by the companies that own them. The age, income and value of the property are the factors that are taken into consideration while deciding on the amount the homeowner can qualify for. These loans are also tax-free.
While these are also subject to government regulations, but they are not subject to the same standards as the HECM and they are not eligible for federal insurance. As a result, the reverse mortgages are more expensive and carry high interest rates.
Many seniors have found out a solution by taking a reverse mortgage. It can help elderly homeowners through tight financial situation and long-term care issues. Go through the 3 types and educate yourself to make a better choice.
For more information on this and any other Whidbey Island homes please contact us today.