Types of Reverse Mortgages - How to Qualify and
Things to Look Out For When Shopping for a Reverse Mortgage
March 21st 2006
Cash Poor &
Americans over the age of 62 may find themselves in a position of
cash-poor while sitting on a large sum of equity. Reverse Mortgages
are one option for paying off medical bills, supplementing income,
or a method of making retirement more enjoyable with travel.
Whatever the reason for considering a reverse mortgage, we have
learned that there are a few things to consider before signing on
the dotted line.
There are three
types of reverse mortgages. The first is a single-purpose reverse
mortgage which may be offered by some state and local government
agencies and nonprofit organizations. The loans usually have a
very low cost, but they are not available everywhere. The barrower
may need to be low to moderate income and have a specific use
intended for the funds such as home improvement, property taxes, or
The second type
of reverse mortgage is the Home Equity Conversion Mortgages (HECM).
These mortgages are backed by the U. S. Department of Housing and
Urban Development (HUD). You must meet with a counselor from an
independent government-approved housing counseling agency first.
If you plan on
staying in your home for a very short time, the HECM loans can be
expensive because of up-front. These loans are widely available,
and there are no income of medical requirements.
The third type of
reverse mortgage is the proprietary reverse mortgages, which are
private loans that are only backed by the companies that develop
them. Like all of the other reverse mortgages, you must live in
your own home, and the loans are generally tax-free.
mortgages usually don’t affect Social Security or Medicare
benefits. Check with your advisor about this before making any
decision. 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
With the HECM
program, a borrower can live in a nursing home or other medical
facility for up to 12 months before the loan becomes due and
payable. Also, beware that interest accrues on the loan funds
advanced to the barrower. Make sure that the 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
charge origination fees and other closing costs for a reverse
mortgage. There may also be a service fee over over term of the
mortgage. The interest rates may either be fixed or variable, and
since the barrower retains title, the borrower is responsible for
the property taxes. If the taxes or homeowners insurance is not
paid the loan may become due and payable.
around for the best deal. You should always consider selling your
home before taking on a reverse mortgage. Weigh all of your options
after you determine what your home is worth.
By Dan Wilson
Keywords and misspelling: investmint investing intesters
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