Types of Reverse
Mortgages - How to Choose a Lender and How Do They Work - Disadvantages
of a Reverse Mortgage and Pitfalls
June 29th 2006
There are many reasons a person may want a reverse mortgage. If you are
over the age of 62 and find yourself in a position of needing cash for
whatever reason, you may want to consider a reverse mortgage. You may
need some supplemental income, money for medical bills or need to make
your retirement more enjoyable, but do not want to take a chance of
losing your home with a regular mortgage.
There are three types of reverse mortgages. The first is a
single-purpose reverse mortgage which is offered by some state and local
government agencies and nonprofit organizations. To qualify, the
barrower may need to be in the low to moderate income bracket. These
loans are typically for a specific use, like home improvement, property
taxes, or health expenses.
The second type of reverse mortgage is the Home Equity Conversion
Mortgages (HECM). For these mortgages you will need to meet with a
analyst from an independent government-approved housing counseling
agency first. The HECM mortgages are backed by the US Department of
Housing and Urban Development (HUD). Because of the upfront charges,
this loan is widely used by people who plan to stay in the home for a
long time. These loans are widely available, and there is no income of
The third type of reverse mortgage is the proprietary reverse mortgages,
which are issued by private lenders and are only backed by the companies
issuing them. Like all of the other reverse mortgages, you must live in
your own home, and the loans are generally tax-free.
It is recommended that you speak with your tax professional before you
decide. Typically these mortgages do not affect Social Security or
Medicare benefits. You can also remain living in the home, retain title
and do not have to pay back the loan until the last surviving borrower
dies, sells the home or no longer lives in the home as a principal
The HECM is popular because the borrower can live in a nursing home or
other medical facility for up to 12 months before the loan becomes due
and payable. Since interest accrues on the loan, be sure your loan
includes a “nonrecourse” clause that will prevent either the borrower or
the estate of the barrower from owing more money than the house is
Lenders may vary in their origination fees and other closing costs.
There could also be a service fee over the term of the mortgage. You
may also have the option between a fixed rate and a variable rate
mortgage. According to the Reverse Mortgage Rate Times, HECM Reverse
Mortgages interest rates do not vary from one lender to another. This
makes it easier to look for a mortgage.
If either the taxes or the homeowners insurance is not paid the loan may
become due and payable. This clause will protect the lender if you fail
to make payments on property taxes and insurance.
All Reverse Mortgage Loan Specialists are required to be approved by HUD
(Department of Housing and Urban Development). The barrower is still
responsible for the property taxes. You may want to find a specialist
that is a member of an association committed to ethics, like the
National Reverse Mortgage Lenders Association (NRMLA). This organization
was created to protect seniors from predatory lending practices. These
individuals are most likely to be dedicated to fair, objective and
honest dealings with the senior market and their advisors.
Always shop around for the best deal for you. You may want to find a
lender who is committed to the highest standard of consumer information
and who can provide analyses and comparisons that meet AARP’s model
specifications. AARP provides a program that prints out a side by side
comparison of mortgage products. Like anything else, it pays to weigh
you options before you decide.
Keywords and misspelling: investmint investing intesters
Berkshire Hathaway hathway birkshire coke gillet gillette gilette Buffet