Solving the Mystery of the Reverse Mortgage

The term “reverse mortgage” is one that most Americans have heard, yet many may know little about. Unlike refinancing a regular mortgage loan, this type of loan product usually allows homeowners to convert part or all of the equity they hold in their homes to cash without moving out of the home or making payments.

However, because there is more than one type of reverse mortgage loan, it has become a confusing topic. Keep reading for some detailed information designed to remove the mystery and help Salt Lake City residents determine whether a reverse mortgage is right for them.

Understanding the Three Types of Reverse Mortgage

• Single purpose reverse mortgages are typically offered by some type of government agency or nonprofit organization and limited in scope, usually for the purpose of assisting with property taxes, home improvements or some other type of repair or need
• The second type, sometimes called a Home Equity Conversion Mortgage, or (HECM), is a type of reverse mortgage that is federally insured through the United States Department of Housing and Urban Development and has no usage or income requirements
• The third type is called a proprietary reverse mortgage, and is actually a type of private loan, specifically backed and developed by individual companies

Cash Out Payment Options

Since the single purpose reverse mortgage is taken out for a specific purpose, it does not usually include a payment plan to the homeowner. The HECM and proprietary reverse mortage, however, both include payment options that the homeowner should understand.

HECM Payment Options

• a monthly cash payment that is fixed for a certain amount and period of time
• a monthly cash advance on a tenured plan for the length of time the homeowner remains in the home
• a line of credit option that can be accessed as needed, until the full amount is drawn
• a combined option that includes a monthly payment plan, plus an accompanying line of credit

In most cases, these payment options can be changed at any time after the loan is in place for a nominal fee.

Considerations That Homeowners Should Understand Before Taking Out a Reverse Mortgage

Borrowers should be familiar with possible risks and issues that can be part of the reverse mortgage process, including, but not limited to, origination fees, closing costs, service fees and interest accrual. In addition, homeowners should understand that they will continue to be responsible for upkeep, taxes, utilities and other expenses normally incurred by homeowners even after the reverse mortgage has been taken out.

Is a Reverse Mortgage Right For You? 

Because each homeowner’s situation is different, it is important to seek the guidance of a trusted loan professional when exploring the possibility of a reverse mortgage.

As a professional mortgage loan specialist serving the Salt Lake City area, I take my client’s needs seriously and use my knowledge and experience to help them determine if a reverse mortgage, or any other type of home loan product is the right move for them.

Call or come see me soon, and let’s work together to see if a reverse mortgage is right for you!

Source: http://www.consumer.ftc.gov/articles/0192-reverse-mortgages