Types of Reverse Mortgages-Is One Right For You?
Reverse mortgages are a good option for senior homeowners who might be struggling financially. By converting the equity in their home to cash, seniors will have access to money which can help pay for medical bills, monthly utilities, or just about anything else. There are two main types of reverse mortgages.
The first type is a Home Equity Conversion Mortgage. Although a HECM is insured by the Federal Housing Administration, it is actually issued by a mortgage lender. The fee for the insurance is charged annually at a rate of 1.25% of the loan balance which is added to the balance of the loan. Since it is a non-recourse loan, the insurance will pay off any remaining balance should the home eventually sell for less than the loan balance. Most reverse mortgages are HECM.
A less common type of reverse mortgage is a proprietary reverse mortgage. Proprietary reverse mortgages are reserved for high-value properties, usually $750,000 or greater. Often referred to as jumbo reverse mortgages, these types of reverse mortgages are privately insured by the lender. Proprietary reverse mortgages are not mandated by the same regulations as HECMs.
By tapping into the accrued value of your home, you can make your retirement a little more comfortable. You will have an added source of income you can use for bills, medications, vacations, hobbies, or whatever you please.