A reverse mortgage is a loan because it lets a homeowner who qualifies borrow money, but it doesn't work the same way as a loan to buy a home. If you are 62 or older and have a lot of equity in your home, you can borrow against it and get money as a lump sum, a fixed monthly payment, or a line of credit. A reverse mortgage is different from a forward mortgage, which is the kind used to buy a home. With a Reverse Mortgage lenders orange county, the homeowner doesn't have to make any loan payments during their lifetime.
Various kinds of reverse mortgages
Reverse mortgages come in three different kinds. The home equity conversion mortgage is the most prevalent (HECM). The HECM is almost all of the reverse mortgages that lenders offer on homes with values below the conforming loan limit, which is set annually by the Federal Housing Finance Agency. It's also the type you're most likely to get, so that's the type this article will talk about. This type of mortgage is also called an FHA reverse mortgage because it can only be gotten from a lender who is approved by the FHA.
If your home is worth more, you can look into a jumbo reverse mortgage, which is also called a proprietary reverse mortgage.
When you get a reverse mortgage, you can choose one of six ways to get the money:
Get all the money at once when your loan is paid off. This is the only choice with a fixed rate of interest. The interest rates on the other five loans change over time.
Equal monthly payments (annuity): The lender will make steady payments to the borrower as long as at least one borrower lives in the home as their main residence. A tenure plan is another name for this.
Term payments: The lender gives the borrower the same amount of money every month for a set amount of time, like 10 years, that the borrower chooses.
Line of credit: The homeowner can borrow money whenever they need it. The homeowner only has to pay interest on the money that was actually taken out of the credit line.
Equal monthly payments and a line of credit: The lender gives steady monthly payments as long as at least one borrower lives in the home as their main residence. The borrower can use the line of credit whenever they need more money.
Term payments plus a line of credit: The lender gives the borrower the same amount of money every month for a set amount of time, like 10 years, that the borrower chooses. The borrower can use the line of credit if they need more money during or after the term.
You can also use a “HECM for purchase,” which is a type of reverse mortgage, to buy a different home than the one you live in now.
Who should get a reverse mortgage?
A reverse mortgage might sound like a home equity loan or a home equity line of credit, but they are not the same thing (HELOC). In fact, a reverse mortgage is a lot like one of these loans in that it can give you a lump sum or a line of credit that you can use as you need. This depends on how much of your home you've paid off and how much it's worth on the market. But unlike a home equity loan or a HELOC, you don't need to have a job or good credit to qualify, and you won't have to make any loan payments while you live in the home as your main residence.
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