Exploring Different Types of Reverse Mortgages

Reverse mortgages offer borrowers the opportunity to tap into the equity in their fully or mostly paid-off homes to cover everyday expenses. These loans are typically not due until the property is sold and are specifically aimed at retirees aged 62 or older. While most reverse mortgages fall under the category of Home Equity Conversion Mortgages (HECMs), which are government-insured, there are also proprietary reverse mortgages and single-purpose reverse mortgages that cater to specific needs. Let's take a closer look at each type and how they operate.

Key Differences Among Reverse Mortgages

Most borrowers opt for a Home Equity Conversion Mortgage, which is backed by the government. However, if borrowers need a higher loan amount than what a HECM offers, proprietary reverse mortgages from private lenders might be suitable. Single-purpose reverse mortgages are best for addressing a particular expense, such as home repairs or property taxes.

Understanding the 3 Types of Reverse Mortgages

The three primary types of reverse mortgages are Home Equity Conversion Mortgages (HECMs), Proprietary Reverse Mortgages, and Single-Purpose Reverse Mortgages. Each type varies in terms of loan amount, fees, government guarantee, and intended use of proceeds.

Home Equity Conversion Mortgage (HECM)

A HECM is the most common form of reverse mortgage, insured by the government through the U.S. Department of Housing and Urban Development (HUD). It is suitable for retirees aged 62 and older who own their residence outright or have paid off most of their mortgage.

Proprietary Reverse Mortgage

Proprietary reverse mortgages are non-HECM options provided by private lenders. They are not government-insured, so they may carry higher fees and interest rates compared to HECMs.

Single-Purpose Reverse Mortgage

Single-purpose reverse mortgages are typically offered by local governments or nonprofits for specific expenses like home repairs or property taxes. This option is ideal for one-time uses and may have restrictions on how funds are utilized.

Which Reverse Mortgage is Right for You?

Home Equity Conversion Mortgages are suitable for retirees looking to leverage their home equity as an income source. Proprietary reverse mortgages cater to borrowers who don't qualify for HECMs or need a loan amount exceeding HECM limits. Single-purpose reverse mortgages are ideal for addressing singular expenses without tapping into a significant amount of equity.

If you're considering a reverse mortgage, assess your financial situation and goals to determine the best fit for your needs. Each type of reverse mortgage offers unique benefits and drawbacks, so it's essential to carefully evaluate your options before making a decision.