Answering the Question, “What Is a Reverse Mortgage?”
Since 1961, when a bank in Maine issued the first reverse mortgage, the United States has offered this type of mortgage financing.
There are some key differences between a conventional mortgage and a reverse mortgage loan orange county.
. It's a way for those 62 and up to borrow money using the equity in their houses as collateral. It is commonly used to settle existing mortgages, supplement existing income, and cover existing medical costs. Once a reverse mortgage is set up, normally no payback is necessary until death, moving, or selling the home.
Loans secured by a homeowner's reverse mortgage can be either proprietary, meaning they are not backed by the government, or single-purpose, meaning they can only be used for one specific reason.
Reverse Mortgages Used Only For One Purpose
Nonprofits and government bodies offer reverse mortgages for certain purposes. This type of reverse mortgage loan is the most budget-friendly choice because it is supported by the government and non-profit organizations. The interest and fees associated with a single-use reverse mortgage are typically lower than those associated with a home equity conversion mortgage (HECM) or a proprietary reverse mortgage, saving homeowners money.
There are three main kinds of loans, and this one is the rarest and most difficult to get. It's not quite like a home equity loan, which can be put toward anything you like.
Convertible Mortgages for Your Home's Equity (HECMs)
HUD guarantees home equity conversion mortgages (HECMs) through federal insurance. There are substantial upfront charges and higher interest rates associated with this form of borrowing compared to a standard mortgage. Since there are no restrictions on how the money is spent and no special medical conditions, this type of reverse mortgage is by far the most popular.
Pre-application counseling is necessary. This clarifies everything for the homeowner, from costs to payment terms to duties. Participants, if qualified, are also made aware of any options provided by nonprofits or the government. The counseling session has a cost that can be deducted from the money you borrow.
Exclusive Reverse Mortgages
The private lenders who offer proprietary reverse mortgages are the ones who back the loans, rather than the government. Homeowners whose properties are valued higher receive the financial benefits of these increases.
If the value of your home exceeds the $970,800 cap on federally-backed HECM loans in 2022, you may be able to apply for a proprietary reverse mortgage.
Loan amounts are increased for those whose mortgage balances are low. Before applying for a HECM loan, applicants are sometimes required to attend counseling, during which they can learn about the differences between a proprietary loan and a HECM. A lump sum or installment plan is available for repayment, just like with the HECM option.
When you pass away, the balance of your reverse mortgage becomes payable. Your heirs can settle the reverse mortgage in one of three ways: they can sell the home, pay down the debt with their own money, or refinance the property.
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