Reverse mortgages are available only for senior citizens ages 62 and up. The homeowner's obligation to repay the loan is deferred until the occupant dies, leaves the home or sells the home. It differs from a traditional mortgage in that the lending agency for the home makes monthly payments to the homeowner instead of the homeowner making monthly payments to the lending agency. This is great help if you cannot make your payments due to a fixed income. But the loan has to be paid back if you die, sell the home or no longer live there. If you die, the lending agency sells the home and keeps the profit which, in turn, is your way of paying them back. If you sell the home, you have to give the monies to the lending agency. And if you no longer live in the home, you will have to pay the lending agency back somehow.
There are three types of reverse mortgages - single-purpose reverse mortgages, federally-insured reverse mortgages and proprietary reverse mortgages. Single-purpose reverse mortgages are offered by state and local government agencies and non-profit organizations. They generally have a low cost and are not available everywhere. Single-purpose reverse mortgages are used for one purpose that the non-profit organization or government agency specifies, usually for home improvements, repairs or property taxes. These are usually given to low or moderate income seniors.
Federally-insured reverse mortgages, or Home Equity Conversion Mortgages (HECM), and proprietary reverse mortgages are backed by the U.S. Department of Housing and Urban Development. These are both private loans and backed by the companies that provide them. HECM's and proprietary reverse mortgages tend to be more costly, but they are available anywhere and have no income or medical requirements. They can also be used for just about anything, unlike single-purpose reverse mortgages.
When choosing a reverse mortgage, do your homework and try to make smart choices. Whichever reverse mortgage you choose, make sure you are aware of all the conditions and rules you have to follow. Part of your decision depends on how long you plan on staying in your home and where you live. Just remember that if you do opt for a reverse mortgage, your heirs will not receive very many benefits from your home's equity.
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