A reverse mortgage is a type of mortgage loan. The target customer of this loan is the elderly. To make people who want to get the loan understand it better, I am going to introduce you three different subtypes of reverse mortgages respectively. Different types indicate different purposes and different rules. Learning about the differences helps you to choose the right reverse mortgage for yourself. Here are the three types.
Single-purpose reverse mortgages
The lending institutions of single-purpose reverse mortgages are state and municipal government agencies and non-profit organizations. The mortgage is for low- and moderate-income homeowners, because it costs you less than other two types of reverse mortgages. The name implies that the borrower’s purpose of getting the mortgage should be specific and sole. And the lender determines what kind of purpose a single-purpose reverse mortgage carries. The loan eliminates the fee of mortgage insurance premium. It can save you over $10K throughout the whole term. Being lack in the insurance, you may worry about the security of the loan. In fact, there is no need to trouble yourself. That’s because the aim of the insurance is to protect the lender against default, though the borrower pays the premium.
Federally-insured reverse mortgages
A federally-insured reverse mortgage is also known as a HECM. It is the abbreviation of Home Equity Conversion Mortgage. This kind of reverse mortgage is more expensive in comparison with single-purpose reverse mortgages. But you can use it for various purposes. And it’s the most common reverse mortgage. Although you can access to it easily, do not ignore its drawback. Generally your loan amount is limited within the residence’s appraised value. Or the money you borrow cannot surpass the HECM FHA mortgage limit of $625,500.
Proprietary reverse mortgages
A proprietary reverse mortgage is a private loan. It is available in many lending companies. There is a limit in federally-insured reverse mortgage, whereas you can acquire a larger amount from this type of loan. A proprietary reverse mortgage is the most expensive loan in the three types of reverse mortgages. Beside the mortgage fee, its interest rate is higher as well. For homeowners who have higher-value houses that is in the six figures, this reverse mortgage will bring you greater benefits than the other two.
Before you apply for a reverse mortgage, learn about every aspect of these loans. Then you will know which type of reverse mortgage you are eligible for, and from which one, you can make the greatest benefits.