Types of Reverse Mortgages

As you consider whether a reverse mortgage is right for you, also consider which of the three types of reverse mortgages might best suit your needs.

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’re not available everywhere. These loans may be used for only one purpose, which the lender specifies. For example, the lender might say the loan may be used only to pay for home repairs, improvements, or property taxes. Most homeowners with low or moderate income can qualify for these loans.

Proprietary reverse mortgages are private loans that are backed by the companies that develop them. If you own a higher-valued home, you may get a bigger loan advance from a proprietary reverse mortgage. So if your home has a higher appraised value and you have a small mortgage, you might qualify for more funds.

Home Equity Conversion Mortgages (HECMs) are federally-insured reverse mortgages and are backed by the U. S. Department of Housing and Urban Development (HUD). HECM loans can be used for any purpose.

HECMs and proprietary reverse mortgages may be more expensive than traditional home loans, and the upfront costs can be high. That’s important to consider, especially if you plan to stay in your home for just a short time or borrow a small amount. How much you can borrow with a HECM or proprietary reverse mortgage depends on several factors:

• 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.

In general, the older you are, the more equity you have in your home, and the less you owe on it, the more money you can get.

Information from the Federal Trade Commission