Did you know that people who are at least 62 years old qualify for a certain type of mortgage that others don’t?
This is known as a reverse mortgage, and it comes with numerous benefits that you can’t find through traditional loans. Not everybody understands what to expect, though.
In this guide, we’ll look at the different types of reverse mortgages and how you can choose the best one for you.
Traditional Reverse Mortgage
A reverse mortgage is a loan that enables homeowners to convert their home equity into cash. This can often prove to be a substantial amount, as the average house in the US is worth approximately $350,000.
This type of loan is only available to seniors who are at least 62 years old and own their homes outright or have low mortgage balances. The funds received from a reverse mortgage can be used to cover anything, including medical bills and home repairs.
The most common type of traditional reverse mortgage loan is a Home Equity Conversion Mortgage (HECM) loan. They don’t require monthly payments if you still live in the home, making them a noteworthy option for those who are looking for a reverse mortgage.
However, if you move out of your home, the loan must be paid back in full. Be sure that you keep this in mind, as you could run into financial difficulty if you do not expect this situation.
Single-Purpose Reverse Mortgage
Nonprofit organizations and government agencies offer single-purpose reverse mortgages.
These loans are specifically designed to cover a single item or expense, such as home repairs or financing part of long-term care costs. Single-purpose loans do not require monthly payments and the loan must be paid back when the borrower moves out of their home or passes away.
Due to the flexibility of these loans, they are some of the most common. However, it’s always important to have a plan for repayment. The last thing you want is for you or your family to have a large financial burden at a later date.
Proprietary Reverse Mortgage
Lenders are the ones that back a proprietary reverse mortgage instead of a government agency.
These loans offer more flexibility in terms of how the funds can be used and typically allow borrowers to access larger loan amounts than traditional reverse mortgages. However, they also often come with higher interest rates and fees.
In some cases, the fees and interest rates may outweigh the benefits of using a proprietary reverse mortgage. So, it’s crucial that you shop around.
You can also use a reverse mortgage calculator to determine your exact goals. This will generate results based on factors related to your situation, such as the amount of equity you have on your own.
When to Consider a Reverse Mortgage
Reverse mortgages are an attractive option for people who need money but have limited resources or income. They can also be helpful for those who are looking to supplement their retirement savings, as reverse mortgages typically do not require regular payments.
Before taking out a reverse mortgage, however, it is important to consider the pros and cons of each type of loan. It is also important to make sure you understand all of the terms and conditions associated with the loan.
Reverse mortgages can be complicated products, so it’s best to speak with an experienced professional before making a decision. Trying to navigate this process by yourself is sure to cause you complications in the future.
For instance, you may end up taking out a loan that has unfavorable terms. You might end up with the wrong reverse mortgage loan altogether.
What Should I Look For in a Lender?
Not all lenders are created equal.
Choosing the right one is crucial when it comes to getting the results that you need. Interestingly, many people overlook how important it is to check the professional’s past reputation. You will gain insight into what you can expect by checking what previous customers have had to say.
Take note of any consistencies in the reviews — good or bad. Additionally, you should only work with someone who has significant experience in the industry. It’s a risky maneuver to work with someone who is not established in their industry.
A great way to look into this is by booking a consultation. As you might guess, you should prioritize lenders that work with people like you.
It’s crucial to avoid working with the wrong person at all costs. Another factor to consider is the financial terms of their service.
How comfortable are you communicating with them? Only choose lenders who are willing to put your needs first. Reverse mortgages are often complicated for those who are unfamiliar with them. So, it’s not uncommon for people to need a significant amount of guidance.
Your lender should have no trouble walking you through the process and helping you determine the best course of action. This means that they should ask you for plenty of information, such as your financial goals, your familial situation, etc.
If they seem to brush off the circumstances of your situation, it’s best to look elsewhere.
Don’t Overlook the Different Types of Reverse Mortgages
Although the different types of reverse mortgages might seem overwhelming at first, they’re much easier to understand than they seem. Just make sure that you consider the above guidelines so that you make the decision best for you.